Edinburgh IT Fires Manager and Grant Thornton Fined

The Edinburgh Investment Trust (EDIN) has fired fund manager Invesco. This company is an equity income trust focused primarily on the UK, although it also has an objective to increase the Net Asset Value per share in excess of the growth in the FTSE All-Share Index. But in the last few years it has signally failed to achieve that objective. According to the AIC it has fallen behind the sector average in growth in net asset value per share in all of the last year, the last 3 years and the last five years. In the last year alone the total return was 7.0% versus 15.6% for the sector. In other words, it’s a pretty abysmal record.

The company is appointing Majedie Asset Management as the new manager. This is what the company had to say about the reason for the change: “As detailed in the Interim Results announcement also published today, the Company has experienced another period of weak investment performance. This extends the period of underperformance relative to the Company’s benchmark to over three years and is a major disappointment for the Board as well as our shareholders. The Board understands that all good conviction fund managers experience periods of underperformance and a focus on long-term results requires shareholders sometimes to bear bouts of relative weakness especially during times when the fund manager’s style is out of favour. However, your portfolio has suffered from a number of stock specific issues: that is to say large falls in prices of stocks held in the portfolio, the cause of which is specific to each stock rather than resulting from broad market movements. Collectively these stocks have been a significant contributor to the weak performance of the Company and increasingly has led the Board to question the effectiveness of the investment process”.

These are the top ten holdings in the trust: BP, British American Tobacco, Legal & General, Next, Shell, Tesco, BAE Systems, Roche, British Land and Derwent London.

Comment: Firing an investment manager does not happen very often, but certainly the board of the company seems to have given the manager quite long enough to show that improvement was taking place. Shareholders will question whether they allowed the underperformance to go on way too long.

Grant Thornton has been fined £650,000 by the Financial Reporting Council (FRC) after identifying various failures in an audit on an unnamed company in 2016. They refuse to disclose which company was involved.

Grant Thornton has been involved in a number of poor or defective audits, such as at Patisserie Holdings, Vimto, Globo and Salford University. The FRC claims that “We promote transparency and integrity in business” on its web site so why should we not be told the company concerned? It is surely not in the public interest to conceal the name of the company. They clearly still have a “cultural” problem about how they handle investigations.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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