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Trust Insider: all-you-can EIT - 2014's best euro strategy

by James Carthew on Mar 04, 2014 at 00:01

Edinburgh Partners’ approach is based on selecting stocks it believes will appreciate considerably in value over the long term (it tries to forecast for the next five years), then holding those stocks until the market comes round to their way of thinking.

This means turnover on the fund can be quite low. In the year ended 30 September 2013 it sold 25% of the portfolio, driven by a mixture of stocks hitting their valuation targets and stocks disappointing to such an extent that Edinburgh Partners decided they no longer fitted its investment criteria.

EIT invests in Continental European stocks (no more than 10% can be invested in countries not represented in the FTSE All World Europe Index). The portfolio is fairly evenly spread across 40-50 holdings so each is large enough to make an impact on fund performance but small enough not to blow the track record out of the water if it goes wrong.

Edinburgh Partners does not worry about benchmark weightings when constructing portfolios. The largest holding at the end of January 2014, Post NL, was 3.4% of the portfolio. The fund is pretty well diversified by geography and sector with the largest biases at the end of January to France, the Netherlands and Switzerland and industrials, telecoms and automobiles.

As an example of its long-term thinking, the latter sector includes a holding in Volkswagen, which it bought partly for the carmaker’s Chinese exposure at a time when many investors have been cursing their emerging markets exposure.

The board says gearing should not exceed 20% of net assets. There is a €30 million facility with Scotiabank but in practice, since Edinburgh Partners was appointed, gearing has not really been a feature of the fund’s structure and at the end of January 2014 it had net cash of 1.2%.

Edinburgh Partners upped EIT’s exposure to peripheral Europe and cyclical stocks during 2012 and 2013 and was rewarded as investors became a bit more confident about the outlook for the European economy. It sounded a note of caution towards the end of 2013 and markets have had a little wobble since. The question, though, is whether Edinburgh’s style of investing will continue to be rewarded in 2014.

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