ITS CONTRARIAN approach pushes it towards the less favoured investments in good time for a turnaround in fortunes, it is claimed.

Ally McKinnon, manager of the Scottish Investment Trust, which was first listed on the London Stock Exchange in 1887, said it has made meaningful changes to its portfolio which reflect its view that investors are deeply underestimating the potential for certain stocks to benefit from the economic recovery.

He sees the current investment landscape as being at “the start of a multi-year turnaround” for some investments that have been overlooked in recent years and that have been temporarily impacted by the pandemic.

“Loose monetary policy and the shift to working from home ultimately favoured past winners, creating an opportunity for us to buy stocks we like at steep discounts,” said Mr McKinnon.

“It is a contrarian approach,” he said. “What does that mean? It’s a kind of anti-bubble mentality.

“Wherever there’s a bubble, there’s an anti-bubble. We are trying to avoid these hot things and look at the out of favour things.”

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He continues: “We think it is a really interesting time for investing.

“Obviously we have had a terrible pandemic and the ramifications of not just the health issues but the economic issues are going to be with us for years.

“At the Government level we have had a decision to forget about trying to balance the books, we are just going to print money.

“That’s the plan, and we are going to bail out everything that needs bailed out.

“Is that the right or the wrong approach? I don’t know. Is it sustainable? No, clearly not.

“The other thing is most people are better off – of course there are a whole sub set of people who aren’t and it has been dreadful for them – but the average person is better off and has actually money burning a hole in their pocket.

“The flip side to that is that we are now going to enter a 1970s-style inflationary environment. We are at the beginning of it.”

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Mr McKinnon said: “This inflation is in some ways good in the short term for the economy, it will help all sorts of things float the boat, it will help stocks.

“But the thing we really like on that perspective is gold.

“There’s a bubble in Bitcoin, the anti-bubble is gold.”

He said: “Gold miners remain central to the strategy and should respond well to the re-emergence of inflation. The Trust’s holdings include some of the biggest industry players.”

Another with potential is the oil industry. “Obviously we should all be doing all we can to use energy in the most sensible way possible, but the reality is, as perhaps that Texas power out showed, we absolutely rely on oil and gas to power our civilisation and make many of the products we have.

“We are a long way away from making an energy transition, but, in any case, these companies are right at the forefront of it. The outlook for oil is quite interesting too, to us, that is.”

Political headwinds are changing also, he said: “Brexit is in the background but it has not at the forefront of the market’s mind. The bigger thing has been the pandemic.”

The coronavirus pandemic and subsequent UK Government response has resulted in an “under-appreciated opportunity” for banks, Mr McKinnon said.

He said: “The tailwind from rising yields and improving credit trends are not yet fully appreciated.” Unloved cyclicals that are exposed to economic activity have potential to return to favour, also, it is claimed.

The Trust increased its exposure to energy and sees in the "often-overlooked life insurance sector".

Structural changes in the industries where some of these companies operate have distracted investors from the winners within those segments, it is claimed. Retail is a “prime example, as the high street’s struggles have been well documented but a shake-out of weaker competitors leaves those with attractive brands and strong digital strategies to gain market share”.

“Basically the real economy was effectively shut down, and if you were sitting at home you had to use Netflix, you had to play computer games, you had to get your shopping delivered, you didn’t have a choice, and while a lot of that will stick – we’ve just had the best year ever for that sort of business – in contrast we’re just now going into a scenario where the world is going to reopen,” he said.

What countries have you most enjoyed travelling to, for business or leisure, and why? 
The most interesting travel experience I’ve had was moving with my family to Brazil when I was 10 years old. It was a completely different culture. I went to school in Brazil and learned a lot of what it’s like to be an expat. It was fascinating to go back 30 years later and see how it had progressed. 

Q&A

 

When you were a child, what was your ideal job and why did it appeal?

When I was very young, I wanted to be a pilot, for reasons I can no longer remember. When I reached my teenage years, I wanted to be involved with the financial markets.
 
What was your biggest break in business? 


With any career, you need some good breaks as well as skill. I’ve had some good breaks from the people who have trusted me, but I suppose I have repaid that trust by working as hard as I could when given the opportunity.
 
What was your worst moment in business? 


Although I’ve seen my team on video calls and met up individually for walks when allowed over the last year, it’s a great source of sadness we are still not able to get together in the office. 

Who do you most admire and why? 

I am always immensely impressed by anyone who’s overcome a difficult start to life and has achieved things, whether great or small.

What book are you reading and what music are you listening to?


I have just started reading Player Piano by Kurt Vonnegut, Jnr. It’s about a society where machines and computers take charge. I thought the scenario very relevant to today.When it comes to music, I am a fan of the 1980s.