Beating the market year after year is not the easiest of tasks, which is why most fund managers prefer to be assessed over a five or ten-year period, rather than a rolling 12 months. And if that were not enough of a challenge for Mark Barnett, he had the extra pressure of filling some conspicuously big shoes when he took over as the manager of the £1.7 billion Edinburgh Investment Trust in 2014.
He had to follow on from Neil Woodford, widely seen as one of the most successful managers of his generation, who had returned more than 108 per cent for Edinburgh shareholders in about six years after taking over the mandate in September 2008.
The trust was founded in 1889, was listed on the London Stock Exchange in 1952 and now is part of the FTSE 250 index. Its portfolio is weighted towards larger and mid-cap companies listed in the UK.
Mr Barnett, however, is a big hitter in his own right. The fund manager, who worked alongside Mr Woodford at Invesco Perpetual, is highly rated in the sector. He started well at Edinburgh, too, with returns ahead of the benchmark and a rising dividend in 2015 and 2016, but although the dividend has continued to edge upwards, performance more recently has been mixed. That, in turn, has meant that shares in the trust have moved from trading at a premium, in effect being worth more than the value of the assets, to being offered at a discount.
Its exposure to the UK did not play well in the immediate post-Brexit-vote world, with Capita, the outsourcer, among the biggest drags on its performance during the 12 months to March last year. It also suffered from BT’s troubles in the period as an accounting scandal at the telecoms group’s Italian division cooled investor sentiment.
A return of 14.1 per cent in the net asset value of the trust over that period looks none too shabby, but then the FTSE All-Share index, the benchmark, was up by 22 per cent. Performance for the six months to September 30 last year was even poorer, with net asset value up just 0.3 per cent, compared with a 3.6 per cent rise in the benchmark.
Look a little deeper, though, and it becomes clear that the bulk of portfolio did well, with the travails at Provident Financial, the troubled doorstep lender hit by profit warnings and regulatory inquiries, being the main reason for the under-performance. Analysts have pointed, too, to the lack of Edinburgh’s exposure to a mining sector that has been on the front foot over the past year.
When Mr Barnett took over, the shares were trading a little below 600p. They peaked at around 781p in June last year and therefore the present price of about 704p does not appear too high a valuation. Some sector-watchers believe that the trust is well positioned to recover during 2018 and expect its performance to improve.
Mr Barnett remains cautious on the outlook for the UK economy and continues to look for companies with sustainable earnings that have solid prospects to increase their dividend. It’s little surprise, then, that staples such as British American Tobacco, BP and Legal & General are the top three holdings in the portfolio.
The trust has some ground to make up if it wants to beat its benchmark over the 12 months to the end of March this year. Mr Barnett, too, will not want to have two consecutive years of lagging the benchmark on his record. And you can imagine that Glen Suarez, the new chairman, who replaced Jim Pettigrew at the start of this year, will be similarly keen to get his tenure off to a positive start.
ADVICE Buy
WHY Mark Barnett’s track record is impressive, the shares are some way off their peak and further dividend rises are likely.
Versarian
When graphene, the world’s thinnest, strongest and most conductive material, was discovered in a Manchester university lab in 2004, scientists were amazed. By the time that Professors Sir Andre Geim and Sir Konstantin Novoselov, its discoverers, had been awarded a Nobel prize six years later, it was being dubbed the “wonder material” that could change the world. Money poured in from the government and the European Union and countless companies sprang up extolling the virtues of the one atom thick sheet of graphite. But for years the trick of successfully commercialising it eluded even the brightest minds.
Versarien, the Aim-listed graphene specialist, is among those trying to persuade the world that the tide is turning in the material’s favour. Yesterday it announced plans to establish a “Graphene Valley”, centred in Jinan, the capital of Shandong province in eastern China, to rival California’s Silicon Valley. The plans are based on a letter of intent that Versarien has signed with government-backed investors and local authorities in Shandong to open a 100,000 sq ft factory to produce and sell Versarien’s graphene. The company will license its intellectual property and production knowhow to the Chinese, who will provide the factory. Potential uses include in textiles, sports equipment and aircraft and automotive parts.
Versarien has undergone a series of funding rounds since floating on Aim in 2013, when it raised £3 million at 12¼p a share. It has made several acquisitions since then and its latest half-year results to September 30 show revenue growing by 167 per cent to £4.38 million, although less than half of this is from its graphene business. Its shares have more than trebled in value since November after it announced a string of partnerships. Yesterday, they leapt 24½p to 96p.
Niall Ricketts, chief executive, said that the Chinese venture could pave the way to Versarien establishing a significant base in Asia, where graphene could be produced on a large scale for the first time. However, the letter of intent is non-binding, suggesting that this is not an investment for the faint-hearted.
ADVICE Avoid
WHY Market is overexcited by the miracle material
