Reasons to be cheerful as we head to 2020
FUND manager Alasdair McKinnon is in an optimistic mood. He believes 2020 could be a cracking year for stock markets, which in turn would spell good news for shareholders in the trust he manages – Scottish Investment.
McKinnon, who runs the
£600 million investment trust from Edinburgh, believes there are a number of reasons for investors to be ‘cheerful’. But none more powerful, he says, than the certainty created by the emphatic General Election victory by the Conservatives.
‘The result from a stock market point of view was the best one,’ he says. ‘It means a lot of fog around the Brexit issue has been lifted which should encourage big international investors to start looking at the UK stock market again. Yes, the economy is not in a great state, but it is a fact that consumers have money to spend as indeed do businesses. Maybe, the Election result will lift confidence and encourage spending at a consumer and corporate level.’
If an improving UK economy is complemented by an ending of the trade war between China and the United States; stronger economic growth in China; and rate cuts in the US, then McKinnon believes good times are around the corner.
Although its name does not suggest how it is invested, Scottish Investment Trust is a global fund with assets in all the world’s major stock markets – the US, UK, Japan and across Europe. It is conservatively managed, tending to invest in companies with strong brands.
Among its 51 holdings are the likes of US health care giant Pfizer, Swiss pharmaceuticals company Roche and Dutch financial business ING. In the UK, the trust has big stakes in Tesco, BT, Shell, GlaxoSmithKline, United Utilities, Royal Bank of Scotland and British Land.
McKinnon’s emphasis is on finding companies that are currently out of favour, but where he believes there is a good chance of a stock market turnaround. The biggest UK holding is in Tesco. McKinnon says: ‘At one stage Tesco was considered by many investors as a big darling stock. But it overexpanded and the business began to unravel. It’s now retrenched, disposing of operations in both Japan and the United States, and is in much better shape. It should benefit from any increase in consumer spending and it is rebuilding its dividend.’
An added bonus, says McKinnon, is the possible sale of its businesses in Thailand and Malaysia. Earlier this month, the supermarket group confirmed it was in talks with an unnamed buyer. If the sale goes ahead, McKinnon says shareholders in Tesco could be rewarded with a special dividend. McKinnon has also built a top ten stake in BT. He says: ‘BT looks in good nick, especially now that the threat of its part-nationalisation by a Labour Government has been removed. It should also benefit from the Government’s pledge to ensure all households have access to reliable broadband.’ Dividends are a central part of Scottish Investment Trust’s offering to investors, with income paid quarterly. In the financial year to the end of October, the trust paid dividends totalling 30.25pence, a 20 per cent increase on the year before. It means the trust has now increased its dividend payments for 35 consecutive years. Another bonus for investors is that the trust’s annual charges at 0.58 per cent are on the low side.
The result is a trust that has comfortably outperformed the FTSE All Share Index over the past five years – 58 per cent against 45 per cent – but which has underperformed a number of its global investment trust rivals.