The Scottish trust that’s raising a glass to the vineyards of Australia
THE Scottish Investment Trust is on a roll. In recent days it has revealed an outstanding set of annual results with a total return recorded for the year of nigh on 13 per cent. But, more importantly, the Edinburgh-based trust has confirmed its intention to make itself as income-friendly to investors as it possibly can.
When the final dividend for the financial year just ended is paid, the trust will have raised its total regular dividends for the year by 48 per cent to 20p per share. The share price is currently 860½p.
This is the 34th consecutive year the global fund has increased its annual dividends. The icing on the cake will be provided by an additional one-off ‘special’ dividend of 5p that the board has decided to pay. Also, from May next year, the trust will start paying dividends quarterly rather than semi-annually.
‘Twenty pence is the new annual dividend base,’ says Alasdair McKinnon, the trust’s manager. ‘The idea is to grow the dividend from here on in excess of inflation. As for the move towards quarterly payments, it is the way the world is moving. With interest rates so low shareholders want a growing income more than ever – and they want it on a regular basis.’
In addition to a renewed focus on becoming income-friendly, McKinnon has also sharpened the trust’s investment process.
The result is a concentrated portfolio currently comprising 54 listed stocks – with the emphasis on buying companies which are out of favour, but will at some stage (hopefully) come good again.
‘We’re contrarian investors,’ says McKinnon. ‘We often buy when everybody else has given up and we then wait for a turnaround, a bounce back – something that might not happen for a while. Patience is the name of the game. The result is a portfolio diverse across both sectors and geographically.’
This diversity is highlighted by the fact that the biggest holding is Australian wine maker Treasury Wine Estates, owner of such well-known brands as Blossom Hill, Gabbiano, Penfolds and Rosemount. ‘We bought into the company in August 2015 when it was struggling,’ says McKinnon. ‘But we could see that new boss Michael Clarke was transforming the company by re-pricing the wines under the company’s wings. Our intuition was right. It has been nothing but a success for us.’ Other turnarounds include retailer Macy’s and deepwater drilling contractor Diamond Offshore.
Like many investment trusts, Scottish is keen to keep its management costs to a minimum. Since 2014, the ongoing annual charge has dropped from 0.68 per cent to 0.49 per cent, a result of outsourcing some of its administrative operations.
Provided the trust keeps growing, this figure should keep on a downward path. Unlike most other investment trusts, Scottish is self-managed. This means McKinnon and his supporting investment team are employed directly by the trust rather than working for an investment house appointed by the board to manage the fund’s assets.
The team also have no other responsibilities – for example another fund to manage. ‘What we have got is one fund,’ says McKinnon. ‘One brand and no conflicts of interest.
‘We are focused on moving The Scottish Investment Trust forward and making it as appealing as possible to as wide an audience as we can.’