Standard Life Equity Income Trust to focus on value as discount widens

Thomas Moore
Thomas Moore

Standard Life Equity Income Trust (SLEIT), managed by investment director Thomas Moore, is to focus on stocks it thinks are undervalued amid a backdrop of “stretched” valuations after it provided a 12.8 per cent diluted total return on net asset value in the first half of its financial year ended March 31.

The results also showed its FTSE All-Share Index benchmark’s total return was 5.3 per cent.

The fund said the results were strong, with total assets rising to £212.5m (31/03/15) from £190.4m (30/09/14).

The Company’s portfolio’s discount has widened during the period in common with a number of its peers.

As a result, the Company’s share price total return was 5.7 per cent.

The share price ended the period on a discount to diluted NAV of 6.3 per cent.

The average peer group discount was 3.7 per cent.

Since the Board agreed a change in strategy in November 2011 to include a larger proportion of medium sized stocks where the manager has a high conviction, the net asset value total return has been 82.9 per cent compared with the benchmark total return of 47.7 per cent.

SLEIT ranked fourth out of 21 peers in the UK Equity Income sector based on net asset value total return for the six months ended 31 March 2015.

Mr Moore said: “We remain confident in the Company’s positioning and in our ability to identify attractive valuation opportunities. The Company continues to favour consumer facing areas of the market, in anticipation of a sharp pick-up in domestic consumer demand resulting from a lower cost of living, higher employment levels and rising real wages.

“We see some grounds for caution for the wider UK market. In addition to ongoing geopolitical risk, the UK market may continue to suffer from mixed earnings momentum at the sector level, with ongoing earnings downgrades afflicting such sectors as Mining and Oil & Gas, which make up a significant proportion of the index. Furthermore, record low bond yields have lifted the share prices of many bond-like sectors. These sectors appear to have become crowded with yield-seeking investors which has led to valuations that have become stretched in relation to underlying fundamentals.

“The above factors may constrain overall index progress, but should allow the benefits of our active process to become clear. Our approach is to remain focused on under-valued stocks with the greatest potential for positive fundamental surprise.”

Shares in the trust were up 0.3 per cent at 419.12 pence on Thursday.

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