Fund Profile

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Overview
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Overview

Dunedin Income Growth Investment Trust (DIG) aims to grow capital and income primarily from investments in UK equities, aiming to outperform the benchmark FTSE All-Share Index. In recent years DIG’s investment strategy has shifted towards a greater focus on dividend growth at the expense of some initial yield.

This has proven useful in recent months given the parlous backdrop for UK equity income generation. As discussed under Dividend, the strong emphasis placed upon financial strength in stock analysis has meant that, even when holdings were suffering operational headwinds, underlying management teams have often been able to maintain payouts. We understand that DIG’s revenue generation has therefore suffered milder impairments than the market, though it has also been supported by the writing of covered call options (as discussed under Portfolio).

The strategy shift has also ensured that the managers have not had to focus solely on identifying companies where dividends are high or growing but have also been able to introduce companies where they believe there to be attractive long-term total return characteristics. As discussed under Performance, over the previous five years DIG has delivered the second strongest share price returns in its peer group.

DIG has a historic yield of c. 4.3% (as at 15/02/2021) and seems to us likely to at least maintain dividends this financial year, with healthy reserves to draw on if needed. Despite this, the trust trades at a Discount of c. 4.3%, wider than the sector average.

ESG is embedded into the investment process, and as an output the trust scores well on quantitative measures of ESG compliance.

Analyst's View

DIG’s managers view it as a core UK equity income product, and we think many of the characteristics displayed lend themselves favourably to such a designation. An attractive historic yield reflects a level of dividends that look to us like they can at the very least be maintained in the near term, with resilient portfolio income and ample revenue reserve cover. The shift in strategy looks to have further supported the long-term sustainability of a progressive dividend policy, whilst affording the managers greater opportunity to incorporate their ‘best ideas’ for total returns, even when these do not necessarily offer any immediate dividend yield.

The managers use risk analytics to try and ensure that stock-specific factors remain the dominant driver of active risk, as opposed to style or market cap factors, which we think will be welcomed by many investors in this market environment, and we think likely accounts for the lack of strong ‘personality’ in DIG’s relative returns. There has been no set market or macroeconomic backdrop that we think has demonstrated outsized influence on relative returns. Going forward, investors can perhaps therefore focus more on DIG’s own characteristics than concerning themselves with the potential impact of events outwith the managers’ control.

bull bear
Managers have flexibility to focus on their ‘best ideas’
Writing of call options could prove a relative headwind if UK market moves rapidly higher
Returns have been very strong in recent years
Gearing can exacerbate downside, as well as amplify upside
Substantial revenue reserves in place to support the dividend
Rate of dividend growth, as with the market, likely to be muted in the near term
Continue to Portfolio

Fund History

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...
View all

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