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Fund Profile

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Overview
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Overview

Dunedin Income Growth Investment Trust (LON:DIG) turns 150 years old this year. When it first launched, the investment focus was the United States, which was an emerging market at the time. Nowadays, managers Ben Ritchie and Rebecca Maclean primarily focus on the UK and aim to generate a combination of capital returns and growing income, all within a sustainable framework (see ESG).

The managers will have a highly concentrated portfolio of just 30 to 50 holdings. Within this, they will look for a blend of income and growth opportunities to provide investors with an attractive total return. They also employ an option-writing strategy to support a sustainable growing Dividend. The managers can invest up to 25% in overseas markets, allowing them to invest in unique companies not found in the UK, which can also help diversify the portfolio and the income stream. All these features serve to differentiate the trust from the index and peer group (see Portfolio).

The trust’s quality bias has helped to deliver good outperformance over the past five years (see Performance). This had begun to narrow as the market swung towards value companies later in the period, but a good start to 2023 has seen outperformance once more. Turmoil in the banking sector, which the managers are underweight, the quality bias and several bids on their holdings have contributed to this. Looking forward, the managers believe the quality bias should be supportive in the event of market uncertainty. Factors that are likely to be impacted by a downturn, such as the oil price, are not factors that are likely to drive the portfolio. The managers believe they have better visibility of their companies’ prospects, which provides them with reassurance.

Analyst's View

We believe DIG has a number of key standout features that help differentiate the trust from its competitive peer group. It is highly concentrated, focussed on a blend of income and growth, has a resilient income profile and incorporates sustainability throughout the stock selection process. All these factors should help to deliver attractive total returns for investors.

The recently expanded overseas element can also help the trust stand out, as this offers investors access to some unique exposures that are not often found in the UK (see Portfolio). As such, the trust offers a portfolio that is likely to be very different to the peer group. We believe this provides the potential for the managers to deliver outperformance over both the index and the sector. Whilst not a guarantee of future returns, this has occurred over the long term. The managers have been suffering from headwinds in the past 18 months, but recent Performance offers potential signs of having come through this challenging period.

More recently, sustainability may have slipped from the focus of the broad market, but the pressure from investors and rule makers seems to be only growing. We believe this puts the trust in a good place for the long term as a result of its explicit focus on ESG, as well as helping to further differentiate the trust.

Bull

  • Highly differentiated approach to both the peer group and index
  • Strong focus on sustainability
  • Diversification and flexibility offer resilience to the growing income stream

Bear

  • Discount remains narrower than the five-year average, despite recent widening
  • Dividends have not been covered for the past four financial years
  • Gearing can amplify losses, as well as support gains
Continue to Portfolio
2024 Kepler Growth Rated Fund

This trust has been awarded a rating by Kepler Trust Intelligence for growth... Find out more

Fund History

26 Jan 2024 Fund Analysis
DIG outperformed the index over 2023 and continues to differentiate itself from peers…
17 Jan 2024 Top of the Pops
We reveal the winners of our investment trust ratings for 2024…
13 Dec 2023 In-come all ye faithful
Equity income could be a beneficiary of the higher interest environment, with trusts a good way to capture it…
16 Jun 2023 Fund Analysis
DIG offers several differentiating features which help it stand out in a competitive peer group…
26 May 2023 Finding the best UK stocks for income, with Dunedin Manager Rebecca Maclean - Podcast: Trust Issues #16
We talk valuations, European stocks, options writing and UK M&A...
01 Feb 2023 Go your own way
Our analysis shows that investment trusts offer better diversification for those seeking income from equities...
20 Oct 2022 Fund Analysis
DIG offers a differentiated approach to income investing...
27 Apr 2022 Fund Analysis
DIG is the only UK Equity Income trust with an explicit sustainable investing mandate…
18 Aug 2021 Fund Analysis
DIG’s shareholders recently voted to incorporate ESG into the trust’s investment objectives…
11 Aug 2021 In at the deep end
Does seeking out wider-than-usual discounts help investors systematically outperform in the UK trust space?
03 Mar 2021 Strength in depth
UK Equity Income trusts have done a heroic job of maintaining their dividends through the pandemic...
03 Mar 2021 Fund Analysis
DIG offers a high yield backed by large revenue reserves…
29 Jul 2020 To be, or not to be (geared), that is the question
Gearing is part of the toolkit that trusts use to outperform OEICs. But how is it best implemented?...
20 Jul 2020 Fund Analysis
Seeking to grow income, and with substantial revenue reserves, DIG invests primarily in UK companies...
01 Jul 2020 Oh the humanity...
We consider two strategies to cope with markets which, boosted by massive government support, may be witnessing the start of a ‘melt-up’ which may be followed swiftly by a melt-down...
15 Apr 2020 Hold fast
Investment trusts' revenue reserves could make them a vital stronghold for investors facing UK dividend cuts of as much as 47%....
16 Jan 2020 Fund Analysis
Seeking to grow income, and with substantial revenue reserves, DIG invests primarily in UK companies...
17 Jul 2019 Ready for action
In the second part of our active management series, we assess the most active managers across the major closed-ended equity sectors…
07 May 2019 Fund Analysis
Run by Ben Ritchie and Louise Kernohan, Dunedin Income Growth is a turnaround story starting to bear fruit...
01 Oct 2018 Fund Analysis
A UK-focused equity trust, which aims to generate a growing income while achieving capital growth in excess of the FTSE All Share...
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