Invesco Income Growth 26 March 2019
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by Invesco Select: UK Equity. 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.
Invesco Income Growth (IVI) is a cautiously-managed portfolio of UK equities, which aims to produce above inflation dividend growth but also capital growth in excess of the FTSE All Share.
The manager, Ciaran Mallon, focuses on fundamental company research, and looks to invest in companies with a strong record of capital allocation and concern for minority shareholders’ interests. Ciaran has a slight value bias to his fundamentally driven bottom-up stock picking and sits in the well-resourced and highly-rated UK equities team based in Henley with whom he shares ideas.
Despite the difficult environment 2018 brought for equities, mainly due to threats of a trade war, rising interest rates in the US, and the continuous uncertainty surrounding Brexit, the trust performed strongly relative to peers. IVI outperformed both the UK Global Equity Income sector and the IA UK Equity Income sector, whilst staying in line with the FTSE All Share. This turnaround of performance has continued into 2019, and since the start of the year the trust has delivered 6.4% NAV returns, outperforming the peer group (6.1%), the OE peer group (4.4%) and only marginally less than the benchmark (7.2%).
Alongside the strong NAV performance, the trust continues to yield 4.2% and has the distinction of increasing its dividend in each of the last 20 years. Ciaran is fully committed to continuing this record, and places great importance on the sustainability of the earnings and dividends on the companies he buys.
The trust remains trading on a double-digit discount, presently sitting at c.15%. This is wide relative to the rest of the sector, where the weighted average discount is 3.2%.
Ciaran’s strong emphasis on the sustainability of the dividend and on avoiding taking big macro bets makes this portfolio an interesting proposition for a cautious investor in search of income. There is a rigorous focus on a dividend which grows in real terms and an emphasis on ensuring the portfolio has attractive downside characteristics.
Although Ciaran’s value-driven approach has been out of favour over the past few years the momentum behind growth stocks has now waned. This has helped Ciaran’s relative performance begin to turn around, and his low turnover approach has been rewarded as some of his poorer-performing stocks like Vodafone and BATS have now rebounded. The discount of c.15% offers an attractive entry point for a trust that offers sustainable income and the potential for steady capital growth.
|A sustainable growing dividend with strong income reserves
|Value approach continues to be out to favour
|The wide discount offers an attractive entry point for a trust that is turning its performance around
|The discount has proved to be stubborn
|Competitive OCF relative to the sector