Fund Research

Scottish American Investment Company

17 April 2018 View latest version

Scottish American (SAINTS) is relatively differentiated in comparison with most equity income trusts: it invests globally in equities, but it also has the flexibility to invest in other areas such as bonds and directly held commercial property.

A founding constituent of the Bulletproof Income Portfolio, our model portfolio designed to offer a highly resilient income, the trust aims to ‘deliver real dividend growth by increasing capital and growing income’ and has, in our view, a dividend that is highly secure.

A shift in strategy completed in 2015 – targeting income growth, rather than as high an income as possible – has so far had a transformative effect on total returns relative to peers and the benchmark. At the time of writing, SAINTS is the best performer in the Global Equity Income investment trust sector over one and three years.

Since the start of 2015 the trust has delivered NAV total returns of 55%, ahead of the average trust in the Morningstar IT Global Equity Income sector (39%), the IA Global Equity Income sector (30%), not to mention the benchmark – the FTSE All World index (43%) over the same period.

SAINTS has grown its dividend every year for the last 38 years and done so at a rate equivalent to 3.4% per annum over the last ten, ahead of CPI. Having paid an uncovered dividend over the past two years, 2017 was marked by a covered dividend having been paid, which yields 3.2%, amongst the lower yields in the peer group, which averages 3.9%.

The trust is structurally geared via a somewhat expensive fixed-rate debenture that expires in 2022, and, relative to the majority of its peers - which on average have gearing of less than 10% - this means the trust’s gearing, currently 18%, is fairly aggressive. Much of the gearing has been invested in property and fixed interest, which helps to offset some of the extra volatility that 18% gearing might usually engender.

SAINTS has seen some discount volatility over the years, trading in a range between a premium of about 6% and a discount of around the same level. However, over the past year or so, the trust’s premium rating has been relatively consistent. The current premium of 3.4% compares to the average of the last year of 4.4% and the current sector average of 2%.

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Fund History: Scottish American Investment Company

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