Investments 

Cut in debt boosts Scottish Investment Trust performance

Cut in debt boosts Scottish Investment Trust performance

A decision to eliminate debt boosted the performance of the £1.4bn Scottish Investment Trust in the year to October 31.

In its annual results statement, released to the stock market this morning (10 December) and covering the period to October 31, the trust revealed that it repaid all of its borrowing in August, and has not take on any new debt since.

This boosted the trust relative to rival funds in the AIC Global sector, as the market took a sharp turn downwards in October, and by having no gearing, the trust had relatively less exposure to market falls.

That boost wasn’t enough to enable the trust to outperform the AIC Global sector, which returned 4 per cent in the year to the end of October, compared with 2.1 per cent for the Scottish Investment Trust.

Investment trusts can, if they wish, borrow money to invest so that the amount of capital deployed by the fund manager is actually larger than the amount raised from investors.

If the investments perform well this boosts the returns to the end investors as they get the gains made on the borrowed money, after debt repayments.

But a trust that has taken on debt, when the market falls, is increasing the losses experienced by investors.

The Scottish Investment Trust is run by Alasdair McKinnon, who deploys the value style of investing. He said the retail sector was an area of particular focus for him as he felt the negativity towards the high street has reached a "crescendo" that was not always justified.  

david.thorpe@ft.com