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Scottish Investment Trust cuts borrowings

Scottish Investment Trust announced a cut in its borrowings yesterday as it purchased in the market for cancellation 21,188,000 5.75% Secured Bonds 2030. Upon cancellation 82,827,000 5.75% Secured Bonds 2030 will remain in issue. Today it has announced results for the year ended 31 October 2015. The total return on net assets was 4.0% while the share price total return was 3.7%. Over the same period, the FTSE All-World Index total return was 4.2% and the FTSE All-Share Index total return was 3.0%. The full year dividend is increased by 4.2% to 12.5p but there is also a special dividend of 3.5p.

Alasdair McKinnon became manager of the fund in February 2015, having been interim  manager before that. His report says the largest gain came from Pandora (+GBP6.7m), the Danish designer and retailer of jewellery. Demand for its ‘affordable luxury’ brand remained very strong, while the company continued to benefit from a restructuring of its sales channels. UnitedHealth (+GBP6.1m) gained as it became apparent that a consequence of the mergers between US healthcare insurers was an improvement in the pricing power of the larger companies. G–III Apparel (+GBP5.6m), best known for the Calvin Klein brand in the US, also made a strong contribution. The share price had almost doubled and it was sold as he considered the valuation full for a company exposed to cyclical trends. Persimmon (+GBP4.3m), the UK housebuilder, continued to benefit from ideal market conditions whilst the unexpected general election victory of the Conservative Party also removed a perceived political threat.  Microsoft (+GBP3.7m) had a shaky start to the year as analysts focused on weaker trends in PC sales, but his view that the company has an opportunity to shift a large user base to a more valuable subscription model gained traction later in the year. BT (+GBP3.5m), the UK telecoms company, performed well as an amenable regulator provisionally approved the takeover of the mobile operator EE.  Severn Trent (+GBP3.1m) performed well as the attraction of a generous, secure and growing dividend gained a wider following, while rumours of a potential bid from an infrastructure fund continued to rumble in the background. Alphabet (+GBP2.9m), the new holding company name adopted by Google, performed well particularly in the aftermath of this change as the company committed to a greater focus on shareholder returns rather than eclectic projects. Sampo (+GBP2.9m), the Finnish insurer, contributed positively as the secure dividend remained attractive. British Land (+GBP2.8m) benefited from rising UK commercial property prices prompted by an improving economy and the continued cheap cost of debt finance. Sydney Airport (+GBP2.5m) gained due to solid passenger volumes at the city’s airport and a new charging agreement with airlines. Comcast (+GBP2.5m), best described as a US media conglomerate, was thwarted in an attempt to buy a rival during the year but continued to benefit from a number of factors including increased broadband adoption and the hit ‘Minions’ film franchise. Fuchs Petrolub (+GBP2.3m) performed well as demand for lubricants remained elevated. Avery Dennison (+GBP2.1m), a US based packaging company, has seen the benefit of an extensive restructuring that has refocused the company on higher margin products. Ross Stores (+GBP2.1m) performed well in a generally supportive US retail environment. After a period of strong performance, he sold Continental (+GBP2.1m), the German tyre and automotive manufacturer, as he was concerned that slowing Chinese automotive sales would have a future impact.

The larger losses over the year featured a number of basic resource companies which suffered as oil and industrial commodities fell heavily in value. Portfolio holdings affected by this were Royal Dutch Shell (–GBP4.2m), National Oilwell Varco (–GBP3.1m), BHP Billiton (–GBP2.8m), Tourmaline Oil (–GBP2.0m) and Freehold Royalties (–GBP2.0m). Despite the generally good performance of US retail stocks, his purchase of Wal–Mart Stores (–GBP3.2m), proved unsuccessful. Aspen Pharmacare (–GBP2.4m) and Coloplast (–GBP2.4m), which performed very well last year, were sold as he felt that slower growth prospects were unlikely to prove temporary. He mistimed an addition to our new purchase of RSA Insurance (-GBP2.0m), an attractive restructuring story, at a share price that was inflated by a potential takeover bid, and was punished as the bidder walked away. Lastly, Sands China (-GBP1.9m) performed poorly as Macau gaming revenues fell heavily but he added late in the year as he judged the share price did not reflect the longer term prospects.

SCIN : Scottish Investment Trust cuts borrowings

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