267694 EdinburghIT AR 2024 WEB - Flipbook - Page 16
14 / STRATEGIC REPORT / THE EDINBURGH INVESTMENT TRUST PLC
PORTFOLIO MANAGER’S CORE
INVESTMENT BELIEFS
Our competitive edge rests on the combination of our
Global Fundamental team’s structure within Liontrust and
our flexible investment style. Liontrust provides a stable
environment in which our Portfolio Manager operates, and
our investment approach produces portfolios designed to
deliver long-term outperformance on a repeatable basis.
ACTIVE MANAGEMENT
Stock-driven. Share prices follow fundamentals over the long
term. Through our proven investment approach, we expect
to outperform over the long term, net of fees.
High conviction portfolio. We expect the portfolio to contain
around 40 to 50 stocks. Holdings sizes reflect the conviction
we have in each company and our assessment of the upside
and downside potential of its share price.
Risk. We think of risk as permanent capital loss. To mitigate
this, our analysis of a company’s valuation is the first line of
defence. Our risk management process combines our depth
of knowledge of the stocks in the portfolio, plus separate
oversight by Liontrust’s Portfolio Risk Committee.
FLEXIBLE INVESTMENT STYLE
Open-minded approach. We do not have dogmatic style
biases, such as ‘growth’ or ‘value’. We are also prepared
to invest in companies that we identify as having scope
for recovery through management change, business
transformation or an improving business environment. We
expect the profile of the portfolio to evolve depending on
our assessment of individual companies and our reading of
the economic and market background.
Disciplined, rigorous, fundamental research. In keeping with
the stock-driven nature of the portfolio, the vast majority
of our effort takes the form of in-depth stock research. The
remainder is spent on macroeconomic analysis.
Materiality assessment is a core part of the investment
process. As part of the investment process, we identify and
prioritise the key risks and opportunities that each holding
(or potential holding) faces over our investment time horizon.
These risks and opportunities cover all categories, including
ESG related areas. Some of these have financial implications
for the portfolio’s holdings and, as such, we engage each
holding on its key issues or exposures. The outcomes from our
in-depth analysis and engagement help form our conviction
level and investment decisions.
TOTAL RETURN STRATEGY
A focus on both capital growth and income. We take a total
return approach: investor returns should derive over the long
term from both capital appreciation and dividend income.
We generally prefer companies with organic investment
opportunities, but will sometimes hold companies with
acquisitive profiles. Either way, companies with growth
tailwinds are preferred. We view income as an important
component rather than the primary driver of investment
return. This aligns with the Company’s twin objectives.
LONG TERM
Typical holding period of 3-5 years. This is an appropriate
period to ensure that underlying corporate fundamentals
drive investment returns. It is therefore also a sensible period
over which to measure an active manager.
Gearing should enhance shareholder returns. One of the
advantages of an investment trust is the ability to borrow
to enhance equity returns. We therefore expect gearing to
boost investment returns over time.
CAPACITY MANAGEMENT
Scale diseconomies. In our view, investment performance
can rapidly suffer if assets under management become
too large. We carefully manage capacity to ensure that the
interests of existing clients take precedence over new clients.
The approach ensures we retain a size advantage. It enables
us to reposition the portfolio – and those of all our other
clients – quickly and efficiently when required.
DEEP INVESTMENT RESOURCE WITH GLOBAL
PERSPECTIVE
A close-knit investment team. Average experience of the
investment team is 16 years. The team has been stress-tested
across various market cycles.
Challenge and debate. This is encouraged within a structured
risk control environment, with robust oversight processes.
Team members own Liontrust equity and co-invest in the
team’s investment strategies, which in turn underpins
teamwork and collaboration.
