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James Henderson has managed the trust since 1990, and was joined in late 2016 by Laura Foll as joint fund manager. Since James took the helm, the philosophy has been to 'grow the capital to grow the income' and this stock picking approach, along with the all-cap mandate, has meant the portfolio rarely resembles its benchmark.
The trust is a constituent of our Bulletproof Income Portfolio because of its different approach – providing exposure to small and mid cap companies at certain periods in the cycle – and James's excellent long-term track record. The objective differs from other equity income funds in that income is arguably less of a focus.
At times, the managers' stock picking approach has been out of favour. But the team has applied a consistent process, preferring 'quality' companies that have a unique or niche position in their markets. With the bias towards mid to small-cap stocks, the trust underperformed the market in 2016; however, the past two years have seen smaller companies rebound, and the trust has performed broadly in line with the benchmark. Over the longer term, the trust has delivered strong outperformance of the market and the managers' consistent style gives us confidence that they will continue to deliver strong returns.
Alongside NAV returns, the company’s revenues and dividend continue to increase. This year the board anticipates a dividend of 53p, an 8.3% increase over last year (49p), as well as adding to the revenue reserves. We estimate that revenue reserves now stand at 0.75x the annual dividend. Yielding 3.6%, a discount of c.9.5% offers an attractive entry point to the trust.
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