Standard Life Equity Income Trust (SLET) is a multi-cap UK portfolio made up of manager Thomas Moore’s 50-70 best ideas for achieving a high and growing income with the potential for capital appreciation. The manager seeks attractively valued stocks with strong earnings and dividend growth potential that may not have been fully appreciated by the market. He currently sees better fundamentals in stocks outside the blue-chip FTSE 100 Index, and the trust has a large weighting (60%+) to smaller and mid-cap stocks as a result. Recent performance has been affected by poor sentiment towards UK domestic stocks in the run-up to the EU referendum; there is potential for this to reverse if, as widely expected, Britain votes to remain in the EU, although a Brexit vote could have the opposite effect.
SLET manager Thomas Moore uses Standard Life Investments’ Focus on Change philosophy and proprietary quantitative stock matrix to help narrow down the universe of c 1,500 UK stocks to his best 50-70 ideas. While the trust uses the FTSE All-Share Index as a performance benchmark, the manager is unconstrained by index weightings and tends to have a larger proportion in small and mid-cap stocks. Moore seeks stocks with attractive yields and the potential for real growth in both capital and income. The portfolio is constructed bottom-up and company meetings are a key part of the process.
Global equity markets have been troubled in recent months, hit by uncertainty over global economic growth and US interest rate policy. An added factor for UK stocks is the referendum on EU membership, although a vote to remain may provide a fillip to performance in the short term. The summer months have a tendency to be volatile, given lower trading volumes, but outside the FTSE 100 a more favourable earnings outlook could boost prices and dividends on small and mid-cap stocks.
At 2 June SLET’s shares traded at a 2.4% discount to cum-income net asset value. While broadly in line with the five-year average, it is wider than the one- and threeyear averages of 0.4% and 1.2% respectively. Over the long term the shares have tended to trade in a range from a 4% discount to a 2% premium, with share issuance used to meet demand when the shares are trading above par. The recent slight widening in the discount may reflect investor nerves ahead of the EU referendum, and there is thus scope for it to narrow should the UK vote to remain.