Seneca Global Income & Growth

Seeking to achieve total returns of CPI +6% p.a., SIGT invests on a multi-asset basis with a value approach...

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Seneca Global Income & Growth. 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.

Seneca Global Income & Growth

Seneca Global Income & Growth Trust (SIGT) aims to achieve total returns of at least CPI +6% p.a. net of costs over a typical investment cycle, through investment across a range of asset classes and geographies. The management company, Seneca Investment Managers, looks to achieve real (i.e. inflation-adjusted) growth in capital and income over the longer term through investment in direct securities and via third-party fund managers employing a unique value-influenced decision-making process across a wide range of assets. The trust’s managers are avowedly contrarian, and believe SIGT can diversify wider investment portfolios as well as standing alone.

SIGT is managed very much on a team basis, with responsibilities for the various asset classes which comprise the portfolio apportioned amongst the four managers. Using a mixture of qualitative and quantitative inputs, the managers construct a long-term strategic asset allocation (SAA) which will achieve the majority of the trust’s long-term objectives. As we discuss under Portfolio, a further tactical asset allocation (TAA) is then applied, based upon a variety of observations.

As we highlight under Dividend, SIGT currently yields c. 4.6% on a historic basis as at 31/08/2020. SIGT has been successful in growing its dividend in recent years, and revenue generation is diversified by asset class. As well as being able to pay dividends out of historically accumulated revenue reserves, the board has the ability to utilise SIGT’s special reserve and realised capital reserve to support the level of dividend distributions.

SIGT employs a discount control mechanism (DCM). As discussed under Discount, this has proven effective in reducing discount volatility and in growing the trust.

Seneca Global Income & Growth Trust plc | Important information

Before investing you should refer to the Key Information Document (KID) for details of the principle risks and information on the trust’s fees and expenses. Net Asset Value (NAV) performance may not be linked to share price performance, and shareholders could realise returns that are lower or higher in performance. The annual investment management charge and other charges are deducted from income and capital. The Investor Disclosure document, KID and latest Annual Report are available at senecaim.com

Kepler View

Although value as an investment style has been a challenging strategy for several years, and valuation dispersions in major markets have only accelerated following the COVID-19 pandemic and global economic contraction, the trust’s value-influenced multi-asset approach has fared better than might be expected over recent years. Markets have now priced in broad and elevated insolvency risks, whilst those assets perceived as ‘secular growth’ winners seem valued on the assumption they can continue to take economic share for years to come.

Such a scenario seems unlikely to be economically or societally sustainable, given the impact previously witnessed on productivity and wealth dispersion. Higher inflation expectations should reasonably have been expected to be a tailwind to value strategies, but even as inflation expectations have moved higher, a value recovery has not occurred in recent months. Investors looking to apply a value hedge to their portfolio could see SIGT’s different approach and wider range of assets as a way of doing so.

The main point being highlighted by the managers of SIGT, that even moderate economic normalisation could cause substantial repricing of ‘value’ relative to growth, is hard to ignore given the levels of value dispersion. In the meantime, SIGT investors are being paid relatively handsomely to wait, with a c. 4.6% yield. This should remain augmented by relatively uncorrelated income streams from ‘specialist assets’. Recent amendments to the trust’s policy indicate the board remains supportive of the dividend for the foreseeable future.

bull bear
Access to niche, boutique, highly active fund management strategies and a focussed portfolio of UK value stocks
Uncertainty remains over the macroeconomic environment and associated portfolio risks
Attractive, well-diversified yield, well supported by income and reserves Market environment has remained challenging for value
Should act as a diversifier to mainstream equities with potentially high NAV beta to a macro recovery Gearing (although low in SIGT's case) can exacerbate downside as well as amplify upside
Callum Stokeld
Callum joined Kepler as an investment trust analyst in July 2019. Prior to this he worked as a senior investment analyst on a range of multi-manager, multi-asset portfolios, having previously worked at IFA firms in roles focused on oversight of fund selection and asset allocation. He graduated from the University of Glasgow with an honours degree in Law.

Disclaimer

This report has been issued by Kepler Partners LLP.  The analyst who has prepared this report is aware that Kepler Partners LLP has a relationship with the company covered in this report and/or a conflict of interest which may impair the objectivity of the research.

Past performance is not a reliable indicator of future results. The value of investments can fall as well as rise and you may get back less than you invested when you decide to sell your investments. It is strongly recommended that if you are a private investor independent financial advice should be taken before making any investment or financial decision.

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