Schroder Income Growth (SCF) aims to generate real income growth from a portfolio of primarily UK companies. Managed by Sue Noffke, who is supported by Matt Bennison and Andy Simpson, SCF typically consists of a portfolio of around 40 companies, selected without reference to any particular stylistic bias. The managers aim to ensure the majority of portfolio differentiation to the benchmark FTSE All-Share Index is driven by stock-specific factors.
Presently yielding c. 4.0% (as of 24/01/2020), SCF has successfully grown its dividend every year since launch, averaging growth of c. 5.4% p.a. over the past three years to the end of financial year 2019. At the same time, SCF has seen growth in its revenue reserves in recent years, with revenue reserve cover of 1.01x the 2019 dividend. In our view, this provides a strong cushion to help ensure dividends continue to grow in the near future.
Since Sue took over lead management of the trust in 2011, there has been a gradual but sustained repositioning in the investment strategy. There is now less of a focus on producing the maximum level of yield, with Sue instead looking to generate a superior yield relative to the benchmark index whilst also looking to ensure greater portfolio-level dividend growth.
Incorporating ESG considerations into the analytical approach, the managers of SCF are able to draw on significant internal resources, utilising various internal equity analytical teams as sources for idea generation. The trust typically invests in companies in the FTSE 350, but has the ability to invest in smaller companies and overseas; however, Sue and the team presently identify the UK market as highly attractively valued, and are nearly wholly invested in the UK.
This positivity on the market outlook is also reflected in the gearing, with c. 15% of net gearing in place as of 24/01/2020; this was sharply increased in Q1 2019 from having previously been c. 8% net geared. This has helped relative performance, which in turn has piqued wider interest in the trust, helping narrow the discount from over 9% six months ago to c. 0.8% (as of 24/01/2020).