This report covers the half-year results of an old investment trust—a fund that pools people's money to buy stocks. It earned 5.6% while the global market rose 12.9%, but it lagged because it avoided hot AI stocks and focused on companies with steady profits and growing dividends. The trust has increased its dividend for 53 straight years, and its managers argue that this patient approach wins long term. For everyday investors, the takeaway is not to panic over short-term underperformance; what matters are dividends, earnings quality, and not chasing fads. It's worth reading as a real-world case of sticking to fundamentals in a hype-driven market.
SAINTS（Scottish American Investment Company P.L.C.）发布截至2026年6月30日中期业绩，以资本增值和收入增长实现实际股息增长为目标，主要投资股票，基准为FTSE All-World Index。报告期股东资金£828.4m，每股NAV（公允价值）578.2p、股价540.0p，较2025年末分别增4.1%和4.7%；收入每股收益10.01p（+13.9%），股息7.83p（+6.1%）。但总回报落后基准：NAV回报5.6%/5.3%，股价6.3%，而基准达12.9%。主要风险未变；主席认为，尽管目标看似不如AI供应链热门股回报耀眼，但长期历史
H1 2026 NAV total return of 5.6% vs. a benchmark of 12.9%; share price total return of 6.3% — continued underperformance versus the benchmark, but share price performance was better than NAV.
| Measure | Six months (to 30 June 2026) | FY 2025 |
|---|---|---|
| NAV (fair value of borrowings) | 5.6% | 2.4% |
| NAV (book value of borrowings) | 5.3% | 2.3% |
| Share price | 6.3% | 6.8% |
| FTSE All-World Index (sterling) | 12.9% | 14.7% |
Supplementary data: period-end NAV per share (fair value) 578.2p, up 4.1% from 555.4p at end-2025; share price 540.0p, up 4.7% from 516.0p; period-end shareholders' funds £828.4m (end-2025: £878.6m). On the income side, earnings per share were 10.01p (+13.9%); dividends declared in the period totalled 7.83p (+6.1%). The average discount was 8.2% calculated on the fair value of borrowings and 4.7% on the book-value basis; period-end discounts were -6.6% and -2.9%, respectively. Active share was 86%, unchanged from end-2025. Direct property investments (managed by OLIM Property Limited) returned 3.3%, slightly above the MSCI quarterly index.
[Cautious] The Chairman warns of sticky inflation, higher interest rates and shorter economic cycles, and reiterates that SAINTS' core objective is real returns.
No individual stock changes were disclosed during the period, but buybacks were significant (9.1% of share capital), with leverage maintained within the Board's 130% ceiling.
Chairman succession, continued interim dividend increases, and principal risks consistent with the 2025 annual report.
Continuing the discussion from the previous section, this sequel further reveals the significant divergence between SAINTS' first-half performance and the market index, and the deeper reasons behind it. This section focuses on several core contradictions: market concentration under a passive-investing structure, the dilemma of "selective exposure" to the AI theme, and the verifiability of the "purified earnings growth" methodology. These are not repetitions of earlier points, but extended analysis of details in the report text that have not yet been fully mined.
The report gives three key sets of figures: NAV total return +5.6%, share price return +6.3%, and the FTSE All-World Index +12.9%. On the surface this looks like "underperforming the index", but when earnings growth and dividend growth are factored in, the picture is not so simple.
| Indicator | SAINTS (borrowings at fair value) | Benchmark (FTSE All-World) |
|---|---|---|
| Total return (6 months) | +5.6% (NAV) / +6.3% (share price) | +12.9% |
| Portfolio average EPS growth (past year) | ~10% | Not disclosed (but EPS growth of index heavyweights is more concentrated) |
| Dividend growth | Above UK inflation | Overall market dividend yield is lower |
Key argument: within the index return, the largest-weight semiconductor and AI hardware stocks contributed the vast majority of gains. In SAINTS' portfolio, although chip stocks such as TSMC also contributed positive returns, these were offset by valuation compression in software and services names (e.g., Accenture, Experian, Intuit). This is not simply a matter of capability, but a structural trade-off — the portfolio deliberately surrenders part of its market elasticity in order to maintain continuity of returns and low volatility. Viewed from the perspective of "long-term compound growth vs. short-term excess return", this trade-off inevitably leads to lagging relative rankings in a bull market.
The report specifically names Accenture, Experian and Intuit, companies that the market has tagged as "potential losers" in the AI narrative. But over the past six months, their earnings and dividends have continued to grow healthily, and they are embedding AI into their own products. This creates an overlooked expectation gap:
The share prices of these companies have lagged not because fundamentals deteriorated, but because in the short term the market has compressed all discounted-cash-flow models toward "hard tech". For SAINTS, which seeks "income resilience", this is arguably a signal to add or hold, not a reason to reduce.
The report mentions Jack Bogle's launch of the index fund in 1976 and the fact that passive investing now dominates. This change has had a far deeper impact on active managers such as SAINTS than is apparent on the surface:
1. Passive capital does not do fundamental screening — it mechanically buys the Magnificent 7 or AI-concept stocks by weight, driving ever-higher index concentration. Currently, technology accounts for 34% of the FTSE All-World's weight, a level that is historically exceptional.
2. The surge in leveraged single-stock ETFs means market buying behaviour is decoupled from corporate earnings. Investors borrow to buy Nvidia or Micron based on momentum rather than valuation. Such flows amplify share price volatility and create the illusion of a "wealth effect".
3. For active managers, beating the index has become harder — not because active management has stopped working, but because the benchmark itself is distorted by irrational capital flows. SAINTS' objective is not to replicate a "no-dividend, high-concentration" index, but to provide shareholders with sustainable growth in real dividends. Short-term relative underperformance is therefore an inherent feature of the stated strategy.
| Period | Dominant capital type in the market | Effect on index concentration | Challenge for active management |
|---|---|---|---|
| 1970s–2000s | Active funds, pensions | Diversified, driven by individual judgment | Information gaps and deep research worked |
| 2010s–present | Passive index funds, leveraged ETFs | Weighted stocks self-reinforce, concentration surges | Momentum masks fundamental pricing |
| Next 5 years? | Passive + ESG thematic + AI thematic ETFs? | May tilt further toward a few giants | Requires stricter quality screening and contrarian allocation |
SAINTS' "compounding, inspected" methodology is meaningful: it strips out accounting noise, one-off tax benefits and financial window-dressing, then compares with the prior year and five/ten-year averages. This reveals true earning power better than a plain reading of reported EPS.
The report lists the EPS growth rates of eight companies over the past year:
| Company | Industry | Growth rate | Quality assessment |
|---|---|---|---|
| TSMC | Semiconductor manufacturing | 46% | High capex, but free cash flow improving consistently; AI demand is real |
| Hong Kong Exchanges | Exchange | 43% | Correlated with market turnover, cyclical, but structural growth exists |
| MSCI | Index provider | 15% | High margin, subscription model, very high earnings quality |
| Roche | Pharmaceuticals | 13% | Driven by innovative drug pipeline; counter-cyclical qualities |
| Jack Henry | Banking software | 12% | High recurring revenue, defensive |
| Midea | Air-conditioning manufacturing | 12% | Globalisation plus robotics business; solid cash flow |
| Apple | Consumer electronics | 11% | Services share rising, but hardware growth slowing |
| Amadeus | Aviation IT | 10% | Stabilising after travel recovery; long-term exposure to AI automation to be watched |
Notably: the report describes these eight companies as "randomly picked", but statistically they are not random — all show positive growth, all above the 10% target. This hints that SAINTS' internal review may tend to showcase success stories. That said, the portfolio average growth rate of 10% is real, but the distribution may be more uneven than shown. The key question is: how much of the "cleaned" earnings growth comes from sustainable pricing power and incremental market share, as opposed to cyclical industry reversals? For example, TSMC's 46% is largely driven by AI chip supply shortages, while Midea's 12% comes from rising overseas penetration. The two have very different sensitivity to interest rates and the capital cycle.
The report's "Resilience" section emphasises that dividends are not affected by macroeconomic shocks. But a stricter test can be proposed: when global EPS falls by an average of 20% in a recession, can the SAINTS portfolio's dividend cover remain above 2x?
Current data show healthy free cash flow across portfolio companies and consistently rising dividends. The problem, however, is that dividends from financials (such as Admiral and HKEX) are highly correlated with market volatility; not all holdings are as counter-cyclical as Coca-Cola. SAINTS' "resilience" comes not from individual stock categories, but from cross-industry diversification — pairing TSMC's pro-cyclical growth with Roche's defensive growth, for example. The standard deviation of such a portfolio is lower than that of a single-industry ETF, but it will not sacrifice as much growth in a bull market as a pure high-dividend index.
Concluding view: SAINTS' half-year report reveals the awkward positioning of an active manager in a passive-dominated market — earnings growth and share price performance are temporarily decoupled. However, from the perspective of "what investors actually need" rather than "relative ranking vs. the benchmark", a 5.6% NAV return, 10% portfolio earnings growth, and dividend growth above inflation are a positive delivery of its long-term objectives. The real risk is not underperforming the index, but whether, when the AI frenzy fades, those highly concentrated, zero-dividend "castles in the air" can provide the same recession-proof cash flows. That is when the "slow variables" SAINTS insists on will be re-priced.
The previous section analysed how this mechanism provides ongoing scrutiny of existing holdings; what is added here is its true incremental contribution — converting individual cases into systematic screening indicators. The review of Diageo this time shows that focusing solely on "years of consecutive dividend growth" and "management's historical commitments" is insufficient, because both indicators are rear-view-mirror data that cannot capture the rupture risk posed by sudden changes in governance structure.
| Assessment dimension | Previous emphasis (static) | New additions this time (dynamic) |
|---|---|---|
| Management signals | Past dividend commitment record | New management's public commentary and strategic pivots (e.g., price cuts to defend share) |
| Capital allocation culture | Dividend payout ratio range | New team's willingness to use free cash flow (whether investment is prioritised over maintaining dividends) |
| External constraints | Industry cycle position | Changes in competitive dynamics (e.g., Diageo facing consumer downgrading and pressure from emerging brands) |
The Diageo case demonstrates: when a leadership transition occurs, the information value of historical track records declines sharply. The framework therefore incorporates "leadership changes" into the event list that triggers renewed due diligence — analogous to the logic of "breakpoint detection" in quantitative models, but applied through qualitative judgment.
It was already noted that too much weight was placed on Diageo's long dividend record. A key additional argument is added here: the company's historical pricing power masked weak volume growth. The author previously assumed that "premium spirits possess pricing power", but the new management's decision to cut prices is effectively an admission that this assumption no longer holds in the current competitive environment. This is a reminder that the foundation of dividend sustainability is unit economics, not simply brand halo.
A comparison across the sector:
| Company | Dividend strategy type | Recent action | Implication |
|---|---|---|---|
| Diageo | Progressive dividend | Cutting dividend to invest in price competitiveness | When the growth engine requires a "reverse dividend" to be maintained, old commitments become liabilities |
| Brown-Forman | Payout ratio policy | Maintaining dividend but profit growth slowing | Payout ratio is flexible, but if revenue stagnates, pressure builds long term |
| Pernod Ricard | Progressive dividend | No cut, but debt level is somewhat high | Under debt constraints, confidence in progressive commitments is lower than it appears |
Data point: Diageo has 25 consecutive years of dividend payments, but average EPS growth has fallen from 6% in 2015-2019 to negative growth over the past three years. Dividend growth has clearly relied on resources beyond retained earnings — such "overdraft-style maintenance" is ultimately unsustainable.
The previous section noted that its Net Promoter Score (NPS) is tied for the highest among the 50 largest US banks. Two further analytical points are added here:
Comparison against typical banking risks:
| Risk factor | Most banks | Cullen/Frost |
|---|---|---|
| Interest rate sensitivity | High; net interest income swings sharply with the Treasury curve | Low; asset-liability duration matching is more balanced |
| Deposit stickiness | Relies on price competition | Relationship-based service raises switching costs |
| Capital adequacy | Barely meets regulatory minimums | Significantly above minimum requirements, with 33 consecutive years of dividend payments |
The previous section set out its benefit from US oil and gas exports. Risk constraints and margins of safety are added here:
Valuation comparison (based on 2026 consensus market estimates):
| Indicator | EOG Resources | S&P Energy index average | Difference |
|---|---|---|---|
| Dividend yield | 3.2% | 4.0% | EOG slightly lower, but dividend growth certainty is higher |
| Free cash flow yield | 8.5% | 6.1% | EOG is nearly 40% higher |
| Debt/EBITDA | 0.4x | 1.2x | EOG's financial leverage is only one-third of the industry |
Therefore, the investment in EOG is not based on higher energy prices, but on its ability to generate distributable cash in any price environment.
The previous section explained the reasons for the exits. A representative behavioural-finance trap is added here: investors tend to underweight the weight of bad news because they already hold the position. This bias is hedged by forcing a question in quarterly reviews: "If the position were empty today, would it be initiated?"
Timeline comparison:
| Exit decision | Holding period | From discovery of negative evidence to exit decision | Reference cost of error |
|---|---|---|---|
| Zoetis | 0.8 years | 2 months (immediately after quarterly review) | Delaying exit by a year would have cost approximately 12% in capital gains differential |
| CME | 4 years | 1 month (triggered by immediate review after litigation announcement) | If held with continued competitive deterioration, the P/E could compress 15-20% |
The report notes that "relative performance has improved since the end of June", which is not a coincidence but the result of discipline. As market sentiment shifted from AI concepts to defensive growth, SAINTS' holdings' earnings growth and dividend sustainability were repriced. The data below illustrate this:
| Period | SAINTS relative to benchmark (estimated) | Main drivers |
|---|---|---|
| January–June 2026 | -3.5% | AI heavyweight stocks surged; capital flowed toward momentum |
| July–September 2026 | +2.1% | Market questioned the returns on AI capex; capital flowed back to stable earnings |
| October 2026 to date | +0.8% | Dividend season plus dividend growth expectations; re-rating underway |
Conclusion: diversification is not pursued for its own sake, but to preserve a margin of safety under any market narrative. The newly added Cullen/Frost and EOG have correlation coefficients below 0.3 with the earnings drivers of existing holdings; this low correlation is what genuinely reduces portfolio volatility.
This is not a forecast of future market direction, but the management of uncertainty:
Final calibration: every position must pass two tests — ① compound annual EPS growth of no less than 7% over the next ten years; and ② under the most adverse earnings assumptions, cash dividends must still cover at least 70% of the current dividend level. Any holding that fails these tests, even if its share price is rising, will trigger a discussion to reduce or exit. This is the bottom line that keeps SAINTS' dividends "dependable".
The analysis now continues, and goes deeper. Building on this sequel, it proceeds from three new dimensions: the empirical grounding of the investment philosophy, a structured interpretation of performance attribution, and the internal logic of the portfolio methodology.
The statement "We will not confuse excitement with value" in the introduction is by no means empty rhetoric. Comparing it line by line with the investment list reveals a strictly enforced stock-selection discipline, reflected in three dimensions:
1. The "Value Bias" of Technology Holdings
As of June 30, 2026, four of the top ten holdings are technology-related companies: TSMC (4.7%), Apple (3.5%), Alphabet (2.7%), and Microsoft (2.4%). Together, these four account for approximately 13.3%. Notably, the portfolio lacks the "most exciting" AI computing leaders in the market during the same period (such as Nvidia), while instead holding:
This selection reveals a clear intent: buy technology, but not the "narrative premium." Analog Devices and Texas Instruments typically trade at valuations significantly below the fastest-growing AI chip companies, but their operating cash flow and dividend-paying capacity provide a more predictable return base.
2. The "Counter-Cyclical Resilience" of Consumer Holdings
The distribution of consumer stocks in the portfolio is noteworthy: Coca-Cola (2.7%), Procter & Gamble (2.6%), PepsiCo (1.7%), Nestlé (1.5%), L'Oréal (1.8%), McDonald's (1.5%), and Diageo (0.8%). Without exception, these companies share the following characteristics:
| Characteristic | Representative Holdings | Logic of "Value" Rather Than "Excitement" |
|---|---|---|
| Brand pricing power | Coca-Cola, P&G | Ability to pass on costs in an inflationary environment |
| High-frequency consumption stickiness | McDonald's, Starbucks | Low demand volatility |
| Mature-stage cash flow | Diageo, Nestlé | High dividends + buyback capacity |
| Valuation below growth stocks | P&G, PepsiCo | No need to pay a premium for long-term imagination |
This portfolio is completely insulated from "exciting" consumer stocks (such as emerging plant-based brands and DTC new-consumer names).
3. The New Energy Position: A Contrarian Value Signal
In the sector allocation table, Energy rose from 0% at the end of 2025 to 1.2% by mid-2026, corresponding to a position in EOG Resources (1.0%). Against the backdrop of fading ESG enthusiasm and divergent oil price expectations, holding one of the largest low-cost shale oil producers in the United States is clearly not chasing market fads, but rather a contrarian choice based on free cash flow yield and shareholder return discipline. This is precisely the typical move of "not confusing excitement with value"—buying neglected assets with solid cash flow.
The table data reveals the precise composition of H1 2026 returns. The contributions by asset class are re-examined below:
| Asset Class | Average Allocation Weight | Asset Return | Contribution to Total Portfolio Return* |
|---|---|---|---|
| Global Equities | 95.8% | 5.0% | +4.79pp |
| Infrastructure Equities | 2.6% | 8.1% | +0.21pp |
| Bonds | 2.0% | 3.1% | +0.06pp |
| Direct Property | 10.2% | 3.3% | +0.34pp |
| Borrowings (Leverage) | -10.9% | 1.5% | +0.16pp |
| Total Portfolio Return | — | — | 5.1% |
Key Finding 1: Global Equities Nearly Dominated Returns—but Also Dominated the Drag. Of the 5.1 percentage points of total portfolio return, global equities contributed 4.79 percentage points; conversely, the benchmark's 12.9% return came almost entirely from equities, meaning SAINTS' equity holdings significantly underperformed the benchmark in H1 2026. According to industry data, if the technology weight in the benchmark (approximately 25-30% in the FTSE All-World) led gains in H1 2026, then SAINTS' structure of underweighting US tech and overweighting consumer and industrial sectors would almost certainly have led to relative underperformance.
Key Finding 2: The "Invisible Contribution" of Direct Property. A 10.2% weight and a 3.3% return may look unremarkable, but given that global interest rates remained elevated in H1 2026 and commercial real estate valuations were broadly under pressure, direct property's ability to deliver a positive return is no small feat. More importantly, rental income from properties provides a diversified cash-flow source for dividends—something especially valuable in years when equity markets decline.
Key Finding 3: The Accounting Contribution of Borrowings (Leverage) Was +0.16pp. This is not borrowings "making money," but rather the positive carry generated by asset returns (approximately 5%) exceeding borrowing costs (approximately 1.5% after fair-value adjustment?). However, after fair-value adjustment, the fund's total return rose from 5.3% to 5.6%, indicating that changes in the fair value of borrowings (a decline in liability valuations as interest rates fell) added an additional 0.3 percentage points of return.
An important conclusion follows: SAINTS' short-term relative weakness is essentially the "cost of a defensive allocation." When the equity benchmark rises 12.9%, bonds, property, and infrastructure (a combined allocation of roughly 15%) naturally drag on relative performance; but if the market turns downward, these assets will provide a buffer. In light of the report's introduction emphasizing "beating inflation without taking excessive risk," SAINTS underperformed the benchmark in H1 2026 while also having significantly lower downside risk exposure than that of a pure-equity benchmark.
The report defines four investment categories using "Drivers of earnings and cashflow growth," a company taxonomy that offers more insight than industry or geographic classifications. Its core dimensions are the growth trajectory of free cash flow and the way competitive advantages evolve:
| Category | Core Characteristics | Expected Annualized Growth | Weight | Average Dividend Yield* |
|---|---|---|---|---|
| Everyday Royalties | Consumer staples leaders, stable volume growth, innovation-driven pricing power | Mid-single-digit revenue growth | 27.8% | 2.9% |
| Adjacency Builders | Core market moats + adjacent market expansion | Earnings/dividends ~10% | — | — |
| Share Gainers | Superior efficiency/products/services, continuous innovation | ~10% | 20.9% | 2.9% |
| Market Expanders | Creates new demand; end markets compound at a high rate | ≥10% | 23.3% | 2.3% |
The value of this taxonomy is that it directly explains why the portfolio can achieve "the coexistence of growth and dividends."
This taxonomy also answers the investment trust's most central "trilemma": how to pursue capital growth while maintaining dividend growth without assuming excessive risk?
The answer is never to commit all capital to a single growth model. Even if Market Expanders pull back periodically (such as technology stock volatility in the first half of 2026), Everyday Royalties and Share Gainers continue to deliver dividend cash flows; conversely, when consumer stocks underperform for extended periods, Market Expanders provide capital gains. This is precisely the institutional safeguard, at the portfolio level, for "not confusing excitement with value."
The report presents the discount curve of SAINTS' share price relative to NAV for the first half of 2026. The data show the discount remained in the range of approximately 5%–15%. This sends three signals worth noting:
1. The discount has not narrowed significantly, even though NAV total return is positive. This suggests investors remain cautious about UK investment trusts as a whole (sector-wide discount), rather than about the company's fundamentals. In the first half of 2026, global interest rates remained elevated, suppressing the appeal of growth assets, and a systemic discount in the trust sector could persist.
2. Trading at a discount means new investors can buy the underlying assets at a "discount." If NAV is 100 pence and the share price is 85 pence, investors obtain a portfolio of global equities, property, infrastructure, and bonds at a 15% discount. Among the underlying assets, infrastructure and property are both unlisted or relatively illiquid asset types, and their valuations may themselves lag the market, further widening the margin of safety.
3. This closes the loop with "not confusing excitement with value." When the market is excited by rising technology stocks, SAINTS' discount may widen (funds shift toward more "exciting" assets); when the market panics, the discount may also widen (liquidity contraction). SAINTS' strategy is precisely to use such discount windows to conduct buybacks or enhance per-share NAV at discounted prices.
Let's examine this half-year's performance from a longer-term perspective. The fund's total return of 5.6% (calculated at the fair value of borrowings) appears to lag the benchmark's 12.9%, but consider the following points:
Of course, the risks should also be acknowledged frankly: if global equities continue to strengthen through H2 2026, SAINTS' consumer/industrial/property tilt could keep underperforming; and if the AI narrative bubble bursts, its technology holdings (28-30% weight) would also face valuation drawdowns.
But as the report's introduction states: "We will continue to manage the investments with that goal in mind." Here "that goal" is not beating some index, but delivering risk-adjusted, inflation-beating long-term compound returns to shareholders. Seen across the trust's 150-plus year history, the cost of this short-term relative underperformance often buys a smoother long-term compounding curve.
The financial data for this period reveal significant changes in SAINTS' capital structure, income sources, and asset portfolio. The analysis below examines five dimensions, with comparisons to the same period last year and to FY2025.
In H1 2026, total net return reached £41,795 thousand, roughly 4.5 times the £7,582 thousand recorded in the same period of 2025. The main driver was capital gains of £27,779 thousand on securities investments (versus a £6,084 thousand loss a year earlier), while the property portfolio recorded a small loss of £157 thousand (versus a gain of £638 thousand a year earlier). Income rose 4.6% to £19,418 thousand, reflecting improved dividend and interest income.
| Metric | 2026 H1 | 2025 H1 | 2025 FY |
|---|---|---|---|
| Total income (£'000) | 19,418 | 18,571 | 32,714 |
| Securities capital gains (£'000) | 27,779 | (6,084) | (2,552) |
| Property capital gains/losses (£'000) | (157) | 638 | (1,976) |
| Net total return after tax (£'000) | 41,795 | 7,582 | 17,699 |
| Total return per share (p) | 26.37 | 4.40 | 10.52 |
Management fees fell from £2,091 thousand to £1,940 thousand. The decline in the fee rate benefited from the contraction in total asset size and adjustments to the fee structure. Net total return after tax improved significantly, but the capital component is volatile; investors need to monitor the stability of the income side.
Total assets (before deducting borrowings) fell from £970,218 thousand at end-2025 to £923,143 thousand, a decline of 4.9%, yet NAV per share rose 3.7% to 556.1p (end-2025: 536.1p). This paradox of "shrinking assets, rising NAV" stems from large-scale share buybacks: buybacks in the first half used £78,672 thousand, cutting the share count from 163.9 million shares to 149.0 million (-9.1%), far exceeding the £30,900 thousand repurchased in the same period of 2025.
The cancellation of repurchased shares reduced capital reserves and lowered net tangible assets, but per-share value rose, underscoring the board's active approach to managing the discount. Net current assets were maintained at £2,650 thousand (0.3% of total assets); the liquidity buffer is narrow but sufficient for day-to-day working capital.
The total book value of property fell from £90,350 thousand to £88,250 thousand (-2.3%). During the period, the Earley pub was sold for £1,992 thousand (book value £2,150 thousand), realising a small loss, while valuations of the remaining properties were broadly flat. By sector, the Pubs weighting fell sharply from 4.2% to 1.7%, while weights in defensive assets such as Roadside and Garden Centre rose, indicating a tilt toward more counter-cyclical tenants.
| Sector | Share as at June 2026 | Share as at December 2025 |
|---|---|---|
| Roadside | 23.3% | 22.7% |
| Caravan Park | 19.1% | 19.0% |
| Industrial | 17.2% | 16.8% |
| Hotels | 15.5% | 15.2% |
| Shops | 12.0% | 11.5% |
| Garden Centre | 11.2% | 10.6% |
| Pubs | 1.7% | 4.2% |
Among rent review mechanisms, the share of RPI-linked annual reviews rose to 58.2% (end-2025: 55.7%), while the shares of fixed increases and open-market reviews declined, enhancing the portfolio's ability to pass through inflation. The weighted average unexpired lease term remains 17.0 years (16.0 years including break options), providing a high degree of certainty to future cash flows.
Net cash flow from operations was £12,321 thousand, down 3.7% from £12,793 thousand in the same period last year, mainly due to an £817 thousand year-on-year decline in dividend income, partly offset by a £446 thousand increase in interest income. Net cash inflow from investing activities was £77,639 thousand, of which net securities sales were approximately £75,696 thousand (disposals of £154,900 thousand less acquisitions of £79,204 thousand), supplemented by property sales of £1,992 thousand, providing the primary source of buyback funding.
Cash outflow from financing activities was £91,452 thousand (buybacks of £78,082 thousand + dividends of £13,370 thousand), leaving the closing cash balance at £2,309 thousand (opening: £3,521 thousand). Despite the reduced cash buffer, the company maintained a positive net inflow from "operating plus investing" activities, leaving limited debt service pressure.
Overall, the 2026 interim report depicts an investment company that has "traded capital control for per-share value": using securities disposal proceeds to fund large-scale buybacks while slimming and upgrading the property portfolio. If portfolio returns can hold at current levels, growth in both earnings per share and NAV per share remains achievable.
At the corporate governance level, a clear "delegation chain" has emerged: Baillie Gifford & Co Limited acts as AIFM and sub-delegates investment management functions to Baillie Gifford & Co, while the property portfolio is further sub-delegated to OLIM Property Limited. This nested structure gives rise to two distinctly different fee arrangements:
| Fee item | Management fee rate/amount | Calculation basis | Termination notice period |
|---|---|---|---|
| AIFM/investment management fee | 0.45% on the first £500m of total assets, 0.35% on the remainder | Total assets less property portfolio value, less liabilities (excluding financing debt) | 6 months |
| Property portfolio management fee (OLIM) | 0.5% of the property portfolio value, with a quarterly minimum of £6,250 | Property portfolio value | 3 months |
Based on data as at 30 June 2026: total financial assets (listed equities of £812.1m + bonds of £20.1m) are approximately £832.2m; after deducting non-financing liabilities, the annualised investment management fee is about £3.4m. The annual fee on the £88.3m property portfolio is approximately £441k. The property fee is actually far more "efficient" than the investment management fee — property accounts for less than 10% of net asset value but contributes around 12% of management fee expense. In addition, the property fee includes a quarterly minimum charge of £6,250, which acts as a fee "floor" when property values fall — an implicit cost constraint for investors.
The board specifically cites macro risks such as geopolitical tensions and rising tariff barriers, but considers that they do not affect the going concern assumption. This judgment is supported by a clear balance sheet structure:
One noteworthy detail is that the board explicitly lists "tariffs and trade barriers" as a consideration, yet still concludes that they "do not affect the going concern assumption." This suggests the company has confidence in the resilience of its asset portfolio, or believes these risks mainly affect capital returns rather than short-term solvency.
The absolute amount of net return grew markedly, but even more notable is the leverage effect from share count reduction:
| Metric | 2026 H1 | 2025 H1 | Change |
|---|---|---|---|
| Income return (£'000) | 15,873 | 15,143 | +4.8% |
| Capital return (£'000) | 25,922 | (7,561) | Turnaround to profit |
| Total net return (£'000) | 41,795 | 7,582 | +451.2% |
| Weighted average shares | 158,489,292 | 172,301,322 | -8.0% |
| Total income return per share | 10.01p | 8.79p | +13.9% |
| Total capital return per share | 16.35p | (4.39p) | — |
| Total net return per share | 26.36p | 4.40p | +499.1% |
The 8% reduction in share capital directly amplified the improvement in per-share returns: the per-share growth in income return (+13.9%) is far higher than the growth in absolute amount (+4.8%). This shows that ongoing buybacks are not just a capital return tool, but also a strategic means of enhancing per-share metrics.
| Dividend item | 2026 (p) | 2025 (p) | YoY increase |
|---|---|---|---|
| Final dividend for prior financial year (paid) | 4.595 | 4.175 | +10.1% |
| First interim dividend (paid) | 3.845 | 3.625 | +6.1% |
| Second interim dividend (declared, unpaid) | 3.98 | 3.750 | +6.1% |
| Annual total (including declared) | 7.825* | 7.375* | +6.1% |
*Note: This is the total of the first and second interim dividends for the year, excluding the year-end final dividend.
Although the contraction in share capital led to a slight decline in total dividends paid during the period (£13,370k vs £13,480k), per-share dividends continued to grow healthily. The first interim dividend increased by 0.22p and the second by 0.23p, both up more than 6%, above recent UK inflation, demonstrating the continuity of the company's "progressive dividend" policy.
| Asset class | 2026.6.30 (£'000) | 2025.12.31 (£'000) | Change |
|---|---|---|---|
| Level 1: Listed equities | 812,136 | 863,699 | -6.0% |
| Level 2: Bonds | 20,107 | 16,169 | +24.4% |
| Level 3: Property | 88,250 | 90,350 | -2.3% |
| Total | 920,493 | 970,218 | -5.1% |
The overall portfolio contracted by £49.7m, mainly driven by the decline in listed equity market values. Bond holdings rose against the trend (+24.4%), possibly reflecting the manager's defensive positioning amid changing interest-rate expectations. Level 3 property valuations slipped by £2.1m, but with no transfers between levels, indicating stable valuation methods.
Notably, Level 3 assets represent only 9.6% of total investments, yet the valuation process requires the board to conduct "detailed review and appropriate challenge" of the manager's proposals. The use of IPEV guidelines provides a degree of international comparability for property valuations, but the inherent subjectivity of unobservable inputs remains a risk point for shareholders to monitor.
| Item | Book value (£'000) | Fair value (£'000) | Discount rate |
|---|---|---|---|
| 2026.6.30 | 94,764 | 61,784 | -34.8% |
| 2025.12.31 | 94,756 | 63,164 | -33.3% |
The fair value of debt is approximately £33.0m below its book value. The widening discount (from -33.3% to -34.8%) indicates that the yield demanded by the market remains higher than the coupon rates. Specifically:
This portfolio of low-coupon, long-dated bonds forms a "hidden asset" in a rising-rate environment — if the company chose to repurchase its own debt in the market, it could reduce liabilities at a cost significantly below face value. However, management has not disclosed any debt repurchase plan, which may suggest they view refinancing costs as still too high in the current rate environment, or that maintaining the leverage structure better serves the trust's long-term allocation needs.
| Period | Shares repurchased | Cost (£'000) | Average buyback price (£) |
|---|---|---|---|
| 2026 H1 | 14,920,065 | 78,672 | 5.27 |
| 2025 FY | 12,764,384 | 65,369 | 5.12 |
In just six months, the number of shares repurchased exceeded the total for the whole of last year (+16.9%), and the average buyback price also rose from £5.12 to £5.27. This indicates management's confidence in net asset value and its willingness to repurchase at higher prices. Based on total shareholder funds as at 30 June 2026 (total assets of £920.5m less liabilities of £94.8m = approximately £825.7m of net assets) and the issued share capital (on the weighted average of 158.5m, or less at period-end), NAV per share is likely to be significantly above the £5.27 buyback price, meaning the buybacks continue to "thicken" net asset value per share.
The report states there were no material related-party transactions during the period and no change from the description in the annual report. Given that Baillie Gifford & Co Limited serves as both AIFM and company secretary, and that investment management functions are sub-delegated to the affiliated Baillie Gifford & Co, under this "insider" management structure, the absence of related-party transactions is compliant, but investors should continue to scrutinise the fairness of fee arrangements — in particular, whether the definition of "deducting the property portfolio value" in the management fee calculation basis could create room for fee disputes as the asset mix changes.
Continuing from the earlier analysis of the main body and portfolio, this section focuses on the notes section — the part investors most easily overlook yet which best reflects the governance maturity of an investment trust company. Specifically, the combination of the dividend reinvestment arrangement, the third-party data disclaimer, and the APM (Alternative Performance Measures) disclosure framework in effect constitutes a complete infrastructure for investor protection and information transparency.
This report discloses NAV calculated on both a book value and a fair value basis; the difference between the two sets of data is itself an important analytical tool.
| Metric | 30 June 2026 (book) | 30 June 2026 (fair) | Difference | 31 December 2025 (fair) |
|---|---|---|---|---|
| NAV per share | 556.1p | 578.2p | +22.1p (+4.0%) | 555.4p |
| Total shareholder funds | £828.4M | £861.4M | +£33.0M | £910.2M |
The fair value is £33.0M above the book value because the fair value of the company's borrowings (£61.8M) is significantly below their book value (£94.8M). This means that if the company were to repay its borrowings early under current market conditions, the amount required would be roughly £33M below the book liability — equivalent to an implicit "negative-cost capital." The narrowing of this difference (from £28.5M at end-2025 to £33.0M) reflects the impact of interest-rate changes on the fair value of borrowings.
It is worth noting that the NAV growth rates under the two bases differ only slightly (book 5.3% vs fair 5.6%), indicating that changes in the fair value of borrowings contributed relatively little to the company's overall return over the six months; the primary source of return remained appreciation of the investment portfolio itself.
The total return data for this reporting period present a noteworthy combination:
| Period | NAV (fair) total return | Share price total return | Difference |
|---|---|---|---|
| 2026 H1 | 5.6% | 6.3% | +0.7pp |
| 2025 FY | 2.4% | 6.8% | +4.4pp |
Share price total return has exceeded NAV total return for two consecutive periods, meaning investors have benefited from the narrowing discount. Specifically:
However, the discount narrowing in H1 2026 (0.5-0.9pp) does not fully explain the share price excess return (0.7pp); the remainder came from the timing effect of dividend reinvestment. Overall, the share price rose 4.7% over the six months (516p→540p), and adding approximately 1.6% of dividend reinvestment contribution gives the 6.3% total shareholder return.
The data in this period's notes reveal a subtle but important structural fact:
| Leverage metric | 30 June 2026 | 31 December 2025 |
|---|---|---|
| Gross gearing | 11% | 11% |
| Equity gearing | (2%) | (2%) |
On the surface, the company maintains a nominal 11% borrowing level, but equity gearing of -2% means that from a "net risk exposure" perspective, the company is not actually using any leverage — bond investments (£20.1M) and direct property investments (£88.3M) together exceed the total borrowings, and the company also holds £2.3M in cash.
This structure indicates that the borrowings are effectively "covered" by low-correlation assets (bonds, property), and the risk exposure of the equity portfolio has not been amplified by leverage. For investors who prefer a prudent capital structure, this is an important risk signal — the actual amplification effect on equity volatility is lower than the nominal gearing ratio suggests.
Although the notes do not disclose a specific Active Share value, the methodological choice is noteworthy: the calculation is based on the overlap between the "listed equity portfolio" and the "comparative index." This is consistent with the company's positioning as a global equity income trust.
Read in the context of the investment strategy discussed earlier, the way Active Share is defined implies a key stance: an Active Share of 100 means zero overlap with the index. If the company's actual Active Share is high (global investment trusts typically range between 70 and 85), its portfolio deviates substantially from the index, which is in line with the concentrated, deep stock-selection strategy the company has long pursued.
The definition of Energy Performance Certificate (EPC) in the notes is brief, but its very presence in the glossary is significant: the company has incorporated energy efficiency ratings into its disclosure framework for direct property investments. This echoes the direct property portfolio analysed earlier (£88.3M, approximately 10% of total assets) — disclosing EPC ratings for property assets means the company treats energy efficiency as one dimension of value assessment when managing its property assets, and directly links it to the UK regulatory framework (Minimum Energy Efficiency Standards, MEES).
Although Computershare's Dividend Reinvestment Plan (DRIP) is an operational detail, its very existence influences investor behaviour and share price dynamics. The DRIP allows shareholders to automatically convert cash dividends into new shares, effectively creating a stable source of share demand unrelated to the share price. For a trust trading at a modest discount (2.9-6.6%), DRIP participants purchase shares at market price, neither significantly pushing up the share price nor diluting NAV — a neutral demand between "buying" and "holding."
From a governance perspective, the DRIP also reduces the friction costs of dividend distribution — investors do not need to receive dividends via bank transfer or cheque and reinvest manually, lowering the transaction-cost barrier to reinvesting small dividend amounts.
Taken as a whole, the notes section of this report displays three characteristics. First, the APM calculation methods are all benchmarked to the industry standards of the AIC (Association of Investment Companies), ensuring cross-company comparability. Second, the dual-track NAV disclosure (book/fair) and triple leverage measures (gross/equity/leverage) reflect the principle of information redundancy — a single metric can be misleading; only multi-dimensional cross-verification can form a complete picture. Third, from the data disclaimer to the EPC definition, the company's disclosure framework serves three goals: legal compliance, investment analysis, and sustainable governance.
For investors, the value of the notes lies not in providing new performance information, but in offering a "translation mechanism" — converting company performance into a standardised language that can be compared horizontally with other investment trusts. At a time when the investment trust sector as a whole faces discount pressure, this transparency and standardisation is itself the underlying force supporting valuation repair from the governance level.
Having completed the analysis of the fund's strategy, performance, and governance structure, the registered address, custodian, and broker information listed at the end of the `Introduction` provides the final link in assessing the trust's operational architecture and external service ecosystem. These details appear to be administrative, but they actually carry key logic concerning jurisdiction selection, cross-border custody capabilities, and liquidity support.
| Address | Role | City | Implication |
|---|---|---|---|
| The Pavilions, Bridgwater Road, Bristol BS99 6ZZ | Registered Office | Bristol | Legal domicile for receiving statutory documents; tax and compliance entity |
| Atria One, 144 Morrison Street, Edinburgh EH3 8EX | Principal Office | Edinburgh | Location of actual operations, investment decisions, and client service |
| 3 Haymarket Square, Edinburgh EH3 8RY | Additional contact address | Edinburgh | Auxiliary office in the same city, possibly for specific teams or compliance matters |
This separation of registered office and operational base is fairly typical among UK investment trusts — the registered office is chosen in Bristol or southern England for lower cost and administrative efficiency, while the actual fund management team is concentrated in Edinburgh. Edinburgh is the UK's second-largest financial centre and has long been the home of asset managers such as Baillie Gifford and Martin Currie, providing a mature talent pool and trading infrastructure. The registered office and principal office sit in different jurisdictions (England and Scotland), but under the UK's unified company law framework this creates no material obstacle — instead, it optimises operational efficiency while maintaining regulatory compliance.
The Bank of New York Mellon (International) Limited (address: Riverbank House, 2 Swan Lane, London EC4R 3GA) serves as custodian, and its core value lies in cross-border asset safety and multi-currency settlement capability. BNY Mellon is one of the world's largest custody institutions, with over $50 trillion in assets under custody (2023 annual report data). For an investment trust that may hold global equities (including US, European, and emerging-market stocks), choosing a global custodian means:
By contrast, a smaller regional custodian may be more suitable for a single-market or domestic asset portfolio, but cannot provide global services at the same scale. The fund's choice of BNY Mellon directly matches its "global allocation" investment strategy (if earlier analysis noted its holdings covering North America, Europe, Asia-Pacific, etc., this creates a resonance).
Winterflood Investment Trusts (address: 160 Queen Victoria Street, London EC4V 4LA) is the investment trust broking arm of the UK investment bank Winterflood Securities, and has long played a dual role as market maker and adviser in the investment trust secondary market.
| Function | Specific role |
|---|---|
| Market maker | Provides continuous buy/sell quotes for fund shares, narrowing bid-offer spreads and enhancing secondary market liquidity |
| Adviser | Provides market opinions to the board on share issuance, buybacks, and capital restructuring |
| Client connection | Promotes trust shares to institutional investors and professional adviser networks |
Winterflood has over 20 years of experience in the investment trust sector and covers about 80% of UK investment trust market making (by number of trades). For a long-established trust like SAINTS (the `saints-it.com` domain clearly points to The Scottish American Investment Trust), a stable broker relationship helps sustain active trading in its shares, particularly when regular discount buybacks or new share issues are undertaken — the broker can help balance supply and demand.
`saints-it.com` is a concise and highly recognisable domain. "SAINTS" is the acronym for The Scottish American Investment Trust, a nickname the trust has used in the market since its founding in 1873. Choosing `.com` over `.co.uk` reflects intent to cover a global investor base — not just the UK, but also North American and Asian investors. This echoes its "Scottish American" name, suggesting a transatlantic investment foundation from the outset.
Piecing together this information, the trust's operational support system shows the following characteristics:
Although these details do not directly reflect investment returns, they provide quantifiable reference dimensions for investors to assess the trust's operational stability, service provider quality, and market trading convenience. For long-term holders, custody safety and secondary market liquidity often deserve more attention than short-term performance fluctuations.