The Edinburgh Investment Trust plc Issues Warning From Woodford

The shares of Edinburgh Investment Trust (LSE: EDIN) climbed 7p to 585p during early trade this morning despite the FTSE 250 member publishing half-year results that carried a warning from Neil Woodford.

Mr Woodford, who manages the portfolio owned by the Edinburgh trust through investment group Invesco Perpetual, cautioned that “returns over the next three years are likely to be somewhat lower than over the last three years, purely as a consequence of the higher valuations that we now see in our market.

He also claimed the withdrawal of “extraordinary” monetary policies in the US was “ultimately inevitable” and admitted he was worried about “the near-term implications of tapering” for equities.

While Mr Woodford added it was “more difficult than usual” to predict the path that the market could take over the next few months, he did reassure shareholders of the Edinburgh trust that their portfolio had “the potential to deliver an attractive positive return over more sensible, longer-time horizons.”

The trust’s half-year results showed the portfolio’s net assets advancing 2% to 592p per share with debt measured at par value.

Major holdings at the September half-year included Woodford favourites GlaxoSmithKline, AstraZeneca, BT, British American Tobacco and Roche.

Mr Woodford also took the opportunity to criticise recent political remarks about the utility sector.

Referring to the 20-month bill freeze proposed by the Labour Party, he described the economics of the policy as “absurd“.

Mr Woodford claimed:

We believe it is irrational for any privately-owned company to sell its products or services at a loss and we would encourage any company that was forced to do so to simply stop supplying.

Prices have not increased through company profiteering – there have been 20 separate inquiries into the energy market since 2001, none of which have found evidence of anti-competitive behaviour.

The Edinburgh trust has stakes in gas supplier Centrica and electricity generator SSE.

Last month Mr Woodford announced he would leave Invesco Perpetual in April to start his own fund-management business.

Jim Pettigrew, the chairman of the Edinburgh trust, said the board “would like to take some time to consider the options for the future management of the company before it makes a decision“.

Based on this morning’s share-price reaction, Edinburgh’s shares trade at about book value.

Of course, whether that rating and Mr Woodford's departure combine to make the Edinburgh trust a 'buy' or a 'sell' right now is something only you can decide.

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> Maynard does not own any share mentioned in this article. The Motley Fool has recommended shares in GlaxoSmithKline.