At the end of next month, the management team in charge of investment trust Edinburgh are due to quietly celebrate three years at the helm of this £1.1 billion stock market listed fund. It will be job well done – so far – with the promise of more and better to come.

‘The numbers in absolute and relative terms will look pretty good,’ predicts James de Uphaugh who, with Chris Field, took over the reins after the board sacked manager Mark Barnett of investment house Invesco. 

Since the pair started overhauling the portfolio in the spring of 2020 – against the backdrop of the pandemic – they have generated some startling returns by investing in UK stocks.

From the beginning of April 2020, shareholders have been rewarded with total returns of 86 per cent – a mix of income and capital. To put this into perspective, the average UK equity income investment trust has registered a return of 64 per cent and the FTSE All-Share Index a gain of 60 per cent.

It hasn’t all been plain sailing. Although the trust is delivering an attractive annual income of around 3.6 per cent, the board sanctioned a dividend cut in the year to the end of March 2022. 

De Uphaugh describes it as a ‘recalibration’ and insists that dividend income is now growing within the ‘envelope of expectation’. In the current financial year, the two quarterly payments declared so far – both 6.4p a share – are above the equivalent payments made in the previous year.

‘The trust’s dividend flow has been helped by our holdings in international energy companies and banks,’ he adds. The fund’s top ten holdings include big stakes in Shell and NatWest. More than 70 per cent of the fund’s 47 holdings are members of the FTSE 100 Index.

De Uphaugh is in optimistic mood. He believes that all the gloom and doom about the UK economy has been overdone. ‘I love the Economist magazine,’ he says, ‘but last year it ran a number of covers that were overwhelmingly negative about the UK economy.’

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He adds: ‘Energy bills might rise short-term, but they will start falling in the summer. Petrol prices are now around £1.50 a litre, compared with £2 a year ago. 

‘Yes, mortgage rates have gone up and will probably creep up a bit more, but beneath the surface the economic news is not as bad as some feared.’ 

From a stock market perspective, the manager says ‘we are in the early phase of a renaissance in UK equities’.

One of the main themes running through the trust’s portfolio is an emphasis on companies in strong competitive positions within their respective markets.

Furniture retailer Dunelm is a good example. ‘It has taken market share from its rivals,’ says de Uphaugh. ‘It also pivoted well when Covid-19 struck, developing an omnichannel approach to sales. 

This has increased the earnings power of its stores, with many customers either buying direct from the outlets, or online and then collecting from the sites.’

The trust has £120 million of borrowings at an average cost of 2.42 per cent. Most of this is invested in the UK. Ongoing annual charges are 0.52 per cent and the trust’s stock market identification code is 0305233. The ticker is EDIN.

The trust’s shares, priced at £6.75, are trading at an 8 per cent discount to the underlying assets.

With the UK stock market looking cheap compared with other international markets, de Uphaugh says the trust offers a ‘double discount’ to investors who believe UK equities offer long-term value.