The Ghost of Christmas Present...

...or Part 2 of IT's a Christmas Carol. I left you yesterday with a look at the long term track record of this UK Investment Trust. Despite this track record and the shares currently yielding over 4% Mr. Market or Scrooge has seen fit to offer this one on a discount of a little over 20%. This may help to explain some of the share price underperformance in the last 10 years which is shown above and like yesterdays graph, is extracted from their report and accounts.

Currently there are a number of potential explanations for this discount which I'll mention in passing today before we take a look into the future with the final part of this trilogy. As I want to keep this brief I'll cover some of the bear points in bullet point form as follows:

• The performance has been a little lack lustre in recent years
  
• Hurt this year by a bias towards Mid Cap & Smaller stocks, although this helped in previous years
  
• They have some expensive fixed debt which reduces the discount if marked to market
  
• It appears quite highly geared as a result
  
• It is quite a small (£100m or so) self managed trust
  
• It has an unusual asset allocation for it's sector, I'll have more on that in the final part.
  

Against that I think their Investment Philosophy seems quite sensible to me:

Our investment approach is shaped by six core beliefs. By following these principles we aim to maximise clients' portfolio returns while minimising their investment risk:

• Value - we prefer low valuations. We invest where the price does not reflect fair value.
• Size - smaller companies (on average) offer greater growth potential.
• Fundamental - analysis is needed to appraise the quality of earnings and estimate fair value.
• Independent - we ignore market noise and current fashions. We diverge significantly from the index.
• Patient - we wait for the right investment opportunities before investing.
• Long term - frequent trading increases costs and is not the same as good investing.

While on Portfolio construction they say:

"We like our portfolios to reflect the conviction behind our best investment ideas. Hence within UK equities we concentrate the holdings on between 30 and 40 stocks. Around 50% will be invested in small and mid cap stocks and 50% in FTSE 100 stocks. Our portfolios tend to have a higher than average yield compared to the overall index. Individual sector weightings reflect our stock selection process. However we do tilt sector positions in accordance with our macroeconomic views. Each portfolio is regularly reviewed by the investment team."

I also note that the two main investment managers between them own around £15m of stock, while the Chairman has around £1.9m so their interests should be aligned with shareholders. I'll ave more to say on that in the final part when we look into the future.

So there is a brief update on the current position, with a lot to like but equally, quite a few issues that help to perhaps explain why this one is a little unloved by Scrooge, despite their best efforts, a bit like Bob Cratchit in a Christmas Carol. Now if that has not put you off do check back for the third and final instalment when I'll take a look into the future and how this might resolve in a profitable fashion. However, be warned if you are a Tiny Tim trader don't come back expecting to find short term gains this is very much a long term buy and hold story which will hopefully stand the test of time like the original Christmas Carol.