At the time of writing, the trust’s share price has already fallen a hefty 4.48 per cent on the news, as a result of a sharp fall in its premium. Cade says Edinburgh IT’s price to NAV has fallen from 6 per cent to 3 per cent in less than an hour, and could be set for more pain until the future of the trust is confirmed.
Performance of trust today
Source: Bloomberg
"At the moment, we don’t know what’s going to happen; as Invesco Perpetual said, the decision of who will run the portfolio lies with the board," Cade said.
"What I would say is that Invesco Perpetual already runs a couple of UK equity income trusts – Perpetual Income & Growth and Invesco Income Growth, as well as the Keystone IT, which is also run like an equity income fund."
"Mark Barnett already runs two of these, and so there is a strong possibility of there being a beauty parade, where other groups are given the chance to pitch for the trust. Having another equity income trust run by Barnett doesn’t really make sense."
Cade does not think any decision will be made by the board until the reasons for Woodford’s departure are made clear. He says there is still a possibility that he will carry on running the trust, but this is impossible to call until the details and capacity of his new business are confirmed.
Until then, he thinks the trust could be in for a rough time.
"On a long-term basis I wouldn’t be too worried – wherever it ends up, whether it be under Woodford, Barnett or another company accepted by the board, it’s going to be in good hands."
"The uncertainty is what happens between now and then. Its premium has already fallen 3 per cent, and there is definitely a chance it could end up on a discount. It’s very hard for anyone to recommend the trust when there is so much uncertainty surrounding it, and I think it could come off certain brokers’ buy-lists."
Cade explains that Numis did not recommend Edinburgh IT prior to Woodford’s announcement, because of the hefty premium it was on. He preferred and continues to prefer Barnett’s Perpetual Income & Growth trust, which is currently on a premium of 2 per cent.
He adds that the panic surrounding the trust could present a buying opportunity for investors in the coming weeks, similar to that seen in Schroder UK Growth IT earlier this year.
"After the news that Richard Buxton was leaving, the discount went out considerably, but after Julie Dean’s appointment it came back strongly. There could be a similar opportunity here," he added.
Edinburgh IT has been a revelation under Woodford since he joined in September 2008, easily outstripping the IT UK Growth & Income sector and FTSE All Share index, with returns of 116.4 per cent.
Performance of trust vs sector and benchmark since Sep 2008
Source: FE Analytics
The trust has ongoing charges of 0.71 per cent, but there is a performance fee on top of that. It is currently yielding 3.8 per cent, and is 22 per cent geared as a result of long-term debentures.
