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This is a non-independent marketing communication commissioned by Columbia Threadneedle Investments. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
CTUK is celebrating 30 years of dividend growth…
Overview

For more than a quarter of a century, Julian Cane has been at the helm of CT UK Capital & Income (CTUK). He’s a stock picker at heart, focusing on three factors he believes are crucial to building conviction in a business and delivering the objective of long-term capital and income growth—company quality, strength of management, and valuation (see Portfolio). In his experience, Julian says it’s better to focus on the long term rather than making short-term bets on market movements. This view resulted in only a small number of changes to the portfolio last year, despite valuations hitting record lows in parts of the UK market. Pearson and Smith & Nephew were amongst the additions, given Julian’s belief in both companies’ long-term growth prospects.

Despite a challenging start to 2023, CTUK has outperformed the index and sector over the last 12 months. A greater allocation to mid-cap businesses, versus the index and peer group average, acted as both a driver and detractor of performance over the year, given the swings in investor sentiment and the state of the UK economy. While having a greater allocation to this part of the market may bring shorter-term volatility, Julian believes it offers greater alpha potential over time, a strategy that has proven itself integral to CTUK’s outperformance of the index over the last decade (see Performance).

Julian’s strategy is to target companies that can grow their dividends in the future, rather than chasing an unsustainably high yield or one which offers little prospect for growth moving forward. This means the trust’s yield can be lower than some peers, but the approach has led to a very consistent and progressive Dividend record, which, as of 2023, saw CTUK celebrate its 30th consecutive year of increasing the dividend, marking it as a stalwart on the AIC Dividend Hero list.

Kepler View

In our opinion, Julian Cane’s experience is invaluable. He’s managed CTUK for over 25 years, going through multiple market cycles over his tenure and providing a degree of continuity found in relatively few funds in the market today. We believe that CTUK could be an appealing proposition for investors looking for differentiated exposure to the UK, given it boasts a greater allocation to mid-cap companies compared to the index and many peers. Julian seeks companies further down the market-cap scale that may have a lower yield but offer stronger dividend growth prospects. This flexibility allows him to balance businesses offering a mix of more sustainable yields and attractive dividend growth potential which, over time, has contributed significantly to CTUK’s 30 consecutive years of dividend growth.

At present, Julian is cautiously optimistic about valuations and the subsequent opportunities in the UK, resulting in only a couple of changes to the Portfolio. We think this view is also reflected in CTUK’s relatively modest Gearing level. At present, it’s only slightly above its own five-year average, which, given valuations and the chance to take advantage of market volatility, may seem too low. However, Julian isn’t abandoning his process for the sake of businesses being cheap, instead, he is putting past lessons to work, ensuring he’s not swept away by short-term market noise, something we find comforting. This level-headed approach, along with a relief rally of mid-cap stocks in the latter part of 2023, has helped CTUK outperform the index and sector over the last 12 months. When you combine the long-term Performance profile and strong Dividend record, we would argue that CTUK’s Discount, which is wider than its five-year average, could signal an attractive opportunity to buy in.

Bull

  • Manager has been at the helm for over a quarter of a century, outperforming the index over this time
  • A three-decade-long track record of growing the dividend
  • Dividend growth has almost doubled that of inflation, since inception

Bear

  • Tilt to medium-sized companies may bring more sensitivity to state of the UK economy
  • Gearing can magnify gains on the upside but also losses on the downside
  • Lower yield than the peer group average, although its dividend is growing consistently each year
Continue to Portfolio

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The information contained herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in the United States to or for the benefit of any United States person (being residents of the United States or partnerships or corporations organised under the laws thereof). The investment funds referred to herein have not been registered in the United States under the Investment Company Act of 1940 and units or shares of such funds are not registered in the United States under the Securities Act of 1933.
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Current Site Kepler Trust Intelligence is produced by the investment companies team at Kepler Partners and is the UK’s premier source of detailed qualitative research on investment trusts. Absolute Hedge is a market leading UCITS research database providing proprietary research on funds, themes and strategies in the UCITS space. Kepler Liquid Strategies is a Dublin domiciled UCITS fund platform featuring a number of best-of-breed fund managers. Kepler Partners is a corporate advisory and asset raising boutique specialising in the regulated funds market in Europe and investment trusts in the UK.