Edison initiation on The Scottish Investment Trust

London, UK, 18 November 2016

Edison issues initiation on The Scottish Investment Trust (SCIN)

The Scottish Investment Trust (SCIN), founded in 1887, is a self-managed global equity investment trust. It has recently taken steps to modernise and streamline its operations, and in October 2015 put in place a focused, contrarian investment process under a new management team. It aims to exploit the behavioural biases of market participants by identifying three types of company: the very out-of-favour; those where improvements have not been appreciated by the consensus; and good companies that could still do better. Recent performance has been strong, but the discount remains wider than average, perhaps reflecting a lack of awareness of the process and team changes. In H215 the trust repaid some of its long-term borrowings, further reducing costs; it now has one of the lowest expense ratios in its peer group, as well as a 34-year track record of dividend growth.

At 15 November, SCIN's discount to fair value cum-income NAV was 11.0% (9.0% for fair value ex-income NAV). This is broadly in line with short- and longer-term averages and not far from the target of 9%. The discount widened in September after a period of strong NAV performance, but the share price has since caught up. Buy-backs are used to manage the discount and there is scope for it to narrow naturally if the improvement in performance under the new investment strategy is sustained.

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