Troy Income & Growth

TIGT’s managers’ commitment to quality remains unwavering in a changing UK market…

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This is a non-independent marketing communication commissioned by Troy Asset Management. 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.

Troy Income & Growth
2021 Kepler Income & Growth Rated Fund

This trust has been awarded a rating by Kepler for income & growth... Find out more

Troy Income & Growth Trust (TIGT) is designed to be a conservative, buy-and-hold, long-term savings vehicle that will generate income as well as both capital and dividend growth via a portfolio of high-quality companies which are predominantly listed in the UK.

In the managers’ words, since 2019 the Portfolio has been “recharged”, with the Dividend of the trust being lowered to ensure that the focus on quality is not being compromised, as the managers believe that the higher yields available in the UK market are becoming fundamentally unsustainable. On a historical basis the yield is presently 2.6%. As discussed under Performance, the managers believe that the focus on quality will best serve investors in the long term, and to date this approach has outperformed the benchmark with significantly lower volatility since inception of their mandate in 2009. However, the avoidance of banks, miners, etc. may result in short-term underperformance when more cyclical ‘value’ stocks rally, as happened in the most recent reflation trade.

Alongside long-term sustainable income and capital growth, the trust aims to preserve capital, which fits in naturally with the focus on quality and the avoidance of speculative investments. Additionally, the managers and board have been circumspect regarding Gearing, having not employed this option to date (though they could do so in the future). Alongside NAV volatility, Discount volatility is carefully controlled via a highly active discount control mechanism. These factors have resulted in TIGT exhibiting significantly lower volatility and lower maximum losses than its peers, which means that to date investors have been able to access the growth potential of TIGT without taking on excessive risk.

Kepler View

It is not uncommon for managers to claim to be active, long-term investors whilst in fact obsessing over quarterly results and relative performance versus a benchmark, rather than focussing on growing their investors’ capital. In taking the difficult decision to rebase the trust’s Dividend with the aim to secure future capital and dividend growth, both the board and manager have demonstrated a commitment to long-term decision-making. If an investor has a similarly long-term time horizon and desires a holding that can deliver sustainable future growth and income without taking excessive risks, then TIGT could appeal.

Another demonstration of long-term thinking was the February 2021 announcement that Francis Brooke would be stepping down from Management responsibilities in January 2022, with Blake Hutchins and Hugo Ure continuing as co-managers. Blake has been co-managing the trust since October 2020 alongside his colleague Hugo, who is a decade-plus veteran at Troy. In our view, announcing these changes a year in advance whilst having had Blake come on board is evidence of thoughtful and long-term succession planning. In terms of management style, we do not believe there will be a radical change in the investment philosophy or process of the trust.

An important consideration for an income investor is the trust’s present level of income and how this will evolve versus current and future income requirements. The dividend rebasing has materially lowered the current yield of the trust, and if an investor has an immediate need for a higher level of income this could prove challenging. However, the rebasing was performed in order to improve the prospects for both future capital and income growth and to improve the long-term sustainability and reliability of TIGT’s income.

bull bear
Capital preservation, absolute return approach leads to lower volatility and superior downside protection
Lower-risk, ungeared portfolio may underperform peers in a strong market rally
Highly liquid with tightly constrained discount volatility due to highly active discount control mechanism
Quality growth style may underperform in rallies led by lower-quality, cyclical ‘value’ stocks and sectors
Quality focus and rebasing of dividend have improved outlook for future income sustainability and growth
The trade-off for future growth is a lower present dividend yield
John Dowie
John is an Investment Trust analyst and joined Kepler in September 2021. Previously he was senior analyst at AFH Wealth Management, where he conducted manager selection, fund monitoring and investment research across a broad range of asset classes. Before joining AFH he worked for Asset Risk Consultants (ARC), providing investment consulting to UHNW private clients and charities. John graduated from the University of Oxford with a BA (Hons) in Physics and the University of Sussex with an MSc in Astronomy. John is a CFA charterholder.

Fund History

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.

Kepler Partners is not authorised to make recommendations to retail clients. This report has been issued by Kepler Partners LLP, is based on factual information only, is solely for information purposes only and any views contained in it must not be construed as investment or tax advice or a recommendation to buy, sell or take any action in relation to any investment.

The information provided on this website is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject Kepler Partners LLP or the Troy Income & Growth Trust to any registration requirement within such jurisdiction or country. In particular, this website is exclusively for non-US Persons. Persons who access this information are required to inform themselves and to comply with any such restrictions.

The information contained in this website is not intended to constitute, and should not be construed as, investment advice. No representation or warranty, express or implied, is given by any person as to the accuracy or completeness of the information and no responsibility or liability is accepted for the accuracy or sufficiency of any of the information, for any errors, omissions or misstatements, negligent or otherwise. Any views and opinions, whilst given in good faith, are subject to change without notice.

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