Alasdair McKinnon: 3 Investment Picks for 2019

Alasdair McKinnon, manager of The Scottish Investment Trust, is backing this trio of beaten up investments to bounce back in the new year

David Brenchley 18 December, 2018 | 12:48PM
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Tesco Metro store, tesco, contrarian investments, retailers, RBS, banks

Stock markets been volatile in recent months - leading many stock pickers to delve into their list of target holdings and snap up companies at attractive valuations.

One professional proceeding with caution however is Alasdair McKinnon, manager of The Scottish Investment Trust (SCIN), who says he’s not much of a trader. But there are a few choice areas catching his eye.


McKinnon is a long-time advocate of some traditional retailers that have been under pressure for years. His top 15 holdings includes the UK’s Tesco (TSCO) and Marks & Spencer (MKS), as well as US stores Macy’s (M), Gap (GPS) and Target (TGT).

Over the near term, McKinnon believes US President Donald Trump’s tax cuts will provide an ongoing tailwind for consumer spending, as people see their more cash in their pay packets.

Over the longer term, he believes there are some misgivings about online-only players. Online retail is “grossly unprofitable; it’s just a market share grab that burns cash”, he says. Meanwhile, delivery and returns are hard to get right for the company and the consumer respectively.

That said, online is clearly a growth area, which leads to McKinnon insisting that “the future of retail is bricks and clicks”. Even Amazon is getting in on the act by opening 3,000 physical stores across America. “They’re presenting it as showcase stores for their wares, but in reality it’s so you can return stuff.”

In the UK, McKinnon notes many retailers are priced as if they’re not going to exist in a few years. “In some cases that’s absolutely correct… but there’s a handful of retailers that we think are in control of their own destiny.”

One new retailer McKinnon has bought recently is French supermarket chain Carrefour (CA), which the fund manager says is a great example of his contrarian investment process. Years ago, it was “Europe’s favourite stock” – one of the biggest and best retailers in the world with the huge rating to go with it.

In late 1999, it was trading north of €90. Today, it is under €15 and “everyone hates it”. But there’s reason to be positive, according to McKinnon: “The valuation is much more reasonable, there are signs of improvement in France and it has a new management team committed to changing the company.”


Banks are “very cheap… almost across the globe”, according to McKinnon. There are some good reasons for that, and clearly a financial crash on a similar scale to 2008’s would put pressure on the sector.

Most banks have spent the best part of the past decade – or 25 years in the case of Japan – with regulators on their backs. “These banks have been sat upon for a long time now – forced to build up capital and not being able to distribute,” says McKinnon.

Now, they’re being “valued as if they’ll never see a positive operating environment again”. However, they’ve now cleaned up their acts and the restrictions imposed upon them have helped leave them in better positions than ever before. “They should weather even a very tough environment.”

Japanese banks, which trade on very cheap price/book values and have good dividend yields, are of particular interest to McKinnon. The Scottish holds both Sumitomo Mitsui Financial Group (8316) and Bank of Kyoto (8369).

Again, the backdrop may not look positive on the surface, with negative interest rates. However, even a slight indication rates could normalise may be enough for a re-rating of share prices.

He also likes the UK’s Royal Bank of Scotland (RBS), which is, again, very cheaply valued on a price/book basis.

“They’ve got a lot of their legal issues out of the way, which have weighed on them for more than 10 years; they will generate a lot of excess capital, which they can distribute either as a dividend or a buyback; and, subject to Brexit, you’ve got a reasonable operating environment.”

Gold Miners

There are a few brewing headwinds for gold, not in the least because it’s one of the few asset classes that has been a bad investment in recent years.

Another positive factor is that governments – as shown in the likes of the US, UK, France, Italy and Mexico – are beginning to spend money again, after years of “austerity”. This tends to be positive for markets for an undefined period until it begins to cause problems down the line and the cycle should be good for gold, says McKinnon.

And if the recent market correction becomes something bigger and more drawn out, gold should start to do well again as investors run for so-called safe assets.

As a result, McKinnon thinks “we’re moving back into a gold-friendly environment”. Gold miners, in the past, have been “pretty poor companies” that had been assigned premium valuations due to the fact they were the only way of gaining exposure to the precious metal.

Then gold exchange traded funds came along and offered that exposure cheaply and “from that point on I never saw the point of owning a gold miner on a multiple of its theoretical NAV”.

Now, they’re much more investable, and are a leveraged play on gold, meaning they should do better than the underlying metal if you’re a gold bull. As a result, McKinnon added US gold miner Newmont Mining (NEM) to his portfolio this year and also owns Australia’s Newcrest Mining (NCM) and UK-listed BHP (BHP).

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Bank of Kyoto Ltd2,629.00 JPY-0.36
Carrefour16.28 EUR0.03Rating
Gap Inc20.86 USD1.51Rating
Macy's Inc20.06 USD-0.30Rating
Marks & Spencer Group PLC295.60 GBX1.03Rating
NatWest Group PLC306.10 GBX-0.36Rating
Newcrest Mining Ltd  
Newmont Corp41.23 USD-2.74Rating
Sumitomo Mitsui Financial Group Inc9,789.00 JPY-0.01Rating
Target Corp144.41 USD0.80Rating
Tesco PLC314.17 GBX0.60Rating

About Author

David Brenchley

David Brenchley  is a Reporter for

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