Investors show faith in Scottish IT manager

The Scottish Investment Trust said in an interim trading statement on Monday that its net asset value (NAV) per share total return, with borrowings at market value, had fallen by 4% and with borrowings at par was down 4.2% in the three months to the end of January.

The global equity portfolio total return was -3.7%, a greater loss than the -3.1% sterling total return of the FTSE All-World Index and -2.0% from the UK FTSE All-Share Index. The share price total return was -2.5%.

Scottish Investment Trust has been one of those 16 investment trusts that have defied the odds to achieve over 25 years of dividend increases for their investors. Its objective is to provide above average returns through a diversified portfolio of international equities and to achieve dividend growth ahead of UK inflation, with a low total expense ratio at 0.75%.

Today's results are a volte-face on its full-year results for the year to 31 October 2013. Then the self-managed 126-year-old Trust announced that NAV returned 28%, beating both global and UK comparator indices, and that the investment portfolio had outperformed over one, two, three, five and 10 years. That success prompted an increase in the regular dividend up 3.1% to 11.60p and a special dividend of 1.80p, its 30th consecutive increase in annual dividends.

John Kennedy, manager of the trust, is cautious and playing a waiting game, believing that the quantitative easing taper will exacerbate market volatility. To that end, over £100 million of borrowings have been held liquid for more interesting buying opportunities, but this general style tends to be left behind in market rallies. Kennedy also reduced the trust's gearing from 5% last May to zero and although it is back to 1% currently, this has proved a major drag on performance, and the fund has also suffered from being underweight the US market.

That said, its biggest holdings are now US consumer services company Comcast (2%,) BT (1.8%) and US company United Health (1.8%).

Kennedy is supported by a team of 10 analysts, all based in Edinburgh, apart from one in Singapore and one in London. The trust has a bias to medium-sized businesses with strong family shareholdings, and if you also like skin in the game, then it may be significant that Kennedy has bought four parcels of shares in January and February, and other directors have been also buying up the shares lately.

Today the shares fell 0.62% to 596.2p, against a 52-week high of 606.50p and a 52-week low of 532p, showing investors by and large have good long-term faith in the manager.