News & views
We’re investing in ugly ducklings…
At the Scottish, we take a contrarian approach to global stock markets.
Our philosophy is simple. We recognise that popular stocks become overvalued while unfashionable stocks are often too cheap. We favour the out-of-favour and look for the signs of change that others overlook – and we aim to exploit this inefficiency to deliver long-term gains for our investors.
Exploiting irrational markets
By the time everyone realises that a great company is great it may no longer be the best investment. It becomes difficult to see the storm on the horizon when everyone is toasting past success.
Similarly, when a company has hit rock bottom, it can be hard to see that there will ever be good times again.
Investment markets are driven by cycles of emotion, rather than dispassionate calculation, and this leads stocks to be priced too highly in the good times and undervalued when times are bad.
This inefficiency is driven by human nature – people feel comfortable sticking with the crowd. But the herding instinct that ensured human survival in the past may not serve our best interests in financial markets. We believe it pays to ignore these instincts when it comes to making investment decisions.
By looking for positive signs of change in the out-of-favour areas of the market, and avoiding the unsustainable bubbles, we see a better balance of risk and reward.
We have the conviction to back our ideas
We are patient investors. When we see that positive change is afoot we have the conviction to back our ideas. But we know it can take time for the changes we see to be recognised by investment markets. That’s why we take a long-term view.
Our high conviction contrarian approach means that when the market reassesses the out-of-favour investments we prefer, our best ideas really count.
Stand out from the crowd
Our investment approach is truly differentiated in a world awash with index trackers. We don’t want to own the overpriced areas of the market so the investment portfolio is constructed without the constraints of a benchmark. This means we expect our performance to be differentiated too.
Built for uncertain times
When the market mood turns, we believe it is important to have a keen eye on risk and reward. That’s particularly pertinent when markets have soared through successive highs. The recent wobbles in equity markets hint at a reassessment of the more speculative areas of the market.
In contrast, the out-of-favour areas we prefer are ripe for recognition. That’s why we believe it pays to invest in ugly ducklings that can turn into beautiful swans.
Please remember that past performance may not be repeated and is not a guide for future performance. The value of shares and the income from them can go down as well as up as a result of market and currency fluctuations. You may not get back the amount you invest.
The Scottish Investment Trust PLC has a long-term policy of borrowing money to invest in equities in the expectation that this will improve returns for shareholders. However, should markets fall these borrowings would magnify any losses on these investments. This may mean you get back nothing at all.
Investment trusts are listed on the London Stock Exchange and are not authorised or regulated by the Financial Conduct Authority.
Please note that SIT Savings Ltd is not authorised to provide advice to individual investors and nothing in this promotion should be considered to be or relied upon as constituting investment advice. If you are unsure about the suitability of an investment, you should contact your financial advisor.
This promotion is issued and approved by SIT Savings Limited.