The board and managers of Scottish American Investment Company (SCAM), also known as SAINTS, have questioned whether the introduction of fiscal stimulus under new US president Donald Trump is necessary.
‘In the US interest rate rises are also likely, and indeed the progression of the economic cycle does raise the question of whether significant fiscal stimulus is actually required,’ warned chairman Peter Noon in the trust’s full-year results.
If these measures do receive Congressional approval later this year, fiscal stimulus could stoke wage inflation that is already evident, Noon added.
‘Markets have been strong and, whilst inflation often helps equities, it is fair to say both that starting valuations are not particularly low and that the market’s earnings growth thus far has not been especially encouraging,’ the chairman noted.
He said the board and management team of SAINTS remained alert to the challenges and opportunities that might arise from the UK’s plans to exit the European Union and stressed the international focus of the trust’s UK stocks.
In the 12 months to 31 January, the trust saw the total return from its portfolio's net asset value (NAV) grow by 29.9%, just 0.3% ahead of the broader market. The trust’s share price rose by 28.7% over the same period.
While this was good in absolute terms, Noon said it was just 0.3% more than the FTSE World index. He said it was strange to see the portfolio perform so closely to the index when it invested in very different companies. He believed that currency movements, with the pound sliding against the dollar, had detracted from returns.
Fortunately another strong year from the property portfolio - in which 12% of the £435 million fund is invested - partly offset this delivering a return of over 9%.
With this in mind, the board took the decision to increase the trust’s dividend for the 37th consecutive year. They recommended a full-year dividend of 10.825p per share, which represents a 1.2% increase versus 2015. The trust yields 3.3%.
In order to pay the dividend, the board has dipped into SAINTS’ revenue reserves, amounting to 0.31p per share. This leaves 9.61p per share in the reserves, which amounts to a little under one year's cover.
‘Our board is confident that this growth will permit both further increases in the company's dividend and a return to a fully covered dividend. In the meantime, in an environment where increases in interest rates are increasingly likely, the marked reduction in exposure to fixed income investments should be helpful to total returns,’ said Moon.
The trust’s manager Dominic Neary backs global companies that are able to produce strong cashflows, with scope to grow these.
Coca Cola (KO.N) represents the trust’s largest position, followed by advertising group WPP (WPP) and pharma giant Johnson & Johnson (JNJ.N).
SCAM shares currently trade on a 2.9% premium to NAV. More up-to-date performance figures show that the trust’s NAV returned 38.1% over the past 12 months and 51.7% over three years. Shareholder returns over those periods have been 38.9% and 54.8%, the latter beating the 42.1% average of other global equity income trusts.