Outlook for 2024 | Edinburgh Investment Trust
Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.
James de Uphaugh provides a brief summary of the outlook for 2024.
It is a good discipline for a fund management team to try and envisage what the headlines might be like in the Financial Times in twelve months’ time – will they be more or less optimistic? This is particularly relevant for the UK market, which has been put in the chiller by international investors since 2016 and has had to absorb a wall of supply from private investors and wealth managers going global and more recently tip toeing back into term deposits and bonds.
The worst of these trends are, however, behind us and their cumulative impact has made the starting point in valuation terms stand out cheap.
If we circle back to the Financial Times headlines, globally we have enduring structural competition between the US and China. The temperature on this will ebb and flow but it is enduring, inflationary and a source of potential risk. China is also struggling to find the impetus for growth now that it has had its building boom. Globally, we have numerous elections, some with populists on the ticket with erratic agendas. Against that mixed international backdrop the UK could be something of a relative safe haven: the Office for Budget Responsibility anticipates we will see a modicum of growth in 2023 and our own election will be characterised by two main parties where the manifestos are relatively centrist – a benign backdrop for the UK equity market.
This backdrop is good for the Trust’s holdings. We have selected 50 holdings each with a front footed strategy to strategically advance their position. SSE, the latest addition to the portfolio, is a nice example of this. Afterall, one of the negatives for the UK and Europe relative to the US is we pay more for our energy. Renewables and wind in particular could be a panacea for the UK and SSE’s acreage is strategically important for improving our energy resiliency for the benefit of all stakeholders.
FT headlines are also likely to see a steady stream of articles on AI. We are currently in the “picks and shovels” phase but we will begin to see headlines on “use cases”. As a team we attend a lot of capital markets days and it is clear talking to the chief technology officers of companies in sectors as diverse as retail and banking that the impact on productivity can be dramatic and that impact, when combined with a low starting valuation, could well surprise.
If we are right that FT headlines about the UK could be more positive in the future then Edinburgh Investment Trust is well set. It trades on a discount to its NAV and that NAV is made up of shares from a market itself on a discount, offering a double discount for investors.
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