Invesco Select: Global Equity Income 19 August 2022

Invesco Select Global Equity Income’s (IVPG) investment objective is to deliver long-term capital appreciation in addition to an attractive and growing level of income. With a new team under Stephen Anness taking responsibility in January 2020, there is now a subtly different approach. Stephen’s team aims to have a balanced exposure across a portfolio of about 45 stocks, avoiding excessive style or factor-risk, which should mean that the trust will have the ability to outperform in a wide range of market environments. The team selects companies for the portfolio based on valuations and prospects for dividend growth over the medium to long term.

Stephen’s team’s approach is a highly active one, illustrated by the active share of 86%, as at 30/06/22, according to Invesco. Stephen’s active approach can also be seen in the team’s response to the market sell-off this year. Consumer defensives were reduced and exposure to industrials was increased as their share prices had fallen and the team has confidence in them for the long term. Over the past year, real estate has been increasing gradually from a zero weighting to 8.8%, as at 31/05/2022. All of this reflects both an element of caution from the team, which is mindful of a recession, and also the conviction to remain wedded to taking a long-term view and back high-quality companies to perform well over the cycle.

When the team took over the trust in early 2020, IVPG underperformed as the portfolio was being transitioned during the pandemic stock market rout. Since then, as shown in the Performance section, relative performance has been on a largely upward trend. The team is optimistic that once Q1 2020 drops out of the three-year performance numbers, investors will be able to appreciate better the team’s alpha-generating capabilities.

The managers seek to provide a growing level of dividends. However, total returns are never compromised by chasing a particular level of income. As discussed in the Dividend section, the board uses the additional flexibility afforded by the investment trust structure to support the dividend through a contribution from capital, which results in a dividend yield at the current share price of 3.1%.

The managers expect the portfolio’s underlying dividends to grow by 7-8% per annum over the medium term. Should they achieve their aim, revenue growth should continue to improve and, potentially, give the board an opportunity to grow dividend payments at a higher rate in the future. With a probable recession looming, it is worthwhile reviewing the resilience of IVPG’s dividends over the period of the pandemic compared with Janus Henderson’s Global Dividend Index, which saw dividends fall by 11.4% over 2020, once again highlighting the attractions of the investment trust structure for income investors.

Relative NAV performance this year has been good. Therefore, we agree with the managers who believe that once the effect of the poor start, which Stephen’s team suffered when they took over the mandate, rolls out of the three-year numbers, there is a potential catalyst for a re-rating if investors start to be better able to see the alpha his team has added over the last two and a half years. If the recent strong relative performance continues, this could be as early as March 2023. In the meantime, the board remains committed to buybacks and has been active in buying back shares recently at a discount of about 10%, as at 05/08/2022. We think IVPG’s balanced approach, with a focus on dividend growth, offers a differentiated exposure within the AIC Global Equity Income sector and one that trades on a significantly wider discount than the peer group average.