The Scottish Investment Trust (LON:SCIN) invests globally, with the aim of achieving capital appreciation and above-inflation dividend growth. A self-managed trust with a 130-year history, SCIN follows a contrarian investment style, with a high conviction portfolio of 50-100 stocks drawn from three categories: ‘ugly ducklings’, ‘change is afoot’ and ‘more to come’. The four-strong management team, led by Alasdair McKinnon, uses behavioural finance techniques to exploit the tendency of investors to ‘follow the crowd’.
By focusing on stocks that are very unloved, those with operational improvements that have been overlooked, and more popular stocks that can continue to do better, they build in a margin of safety. There is an active discount management programme and the trust has recently announced a move to quarterly dividends from FY18.
Investment strategy: From ugly ducklings to swans
SCIN’s management team first evaluate sentiment and capital cycles to determine whether they favour a contrarian investment in a stock, and then undertake valuation work to analyse factors such as the drivers of the business, the yield and sustainability of the dividend, P/E ratio and cyclical earnings position. They are prepared to be patient, long-term investors in unloved stocks that it may take time for the market to re-evaluate. Recently there has been a move to a shorter stock list of 50-100 stocks (previously 70-120), to ensure that only ‘best ideas’ are represented.
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