Invesco Select: UK Equity 09 February 2022

Invesco Select: UK Equity (IVPU) trust's shares merged with Invesco Income Growth in April 2021, resulting in a new force in the AIC UK Equity Income sector which now has critical mass. Ciaran Mallon became co-manager alongside incumbent James Goldstone at the time of the merger. IVPU is one of four share classes which sit under the umbrella of Invesco Select Trust (the others offering global equities, multi-asset and cash exposures).

James and Ciaran aim to ensure the portfolio generates strong total returns through stock selection, and not have returns be too influenced by a narrow set of industry or style-specific drivers. The pair aim to use the investment trust structure to have a slightly more concentrated portfolio than their open-ended funds (40-50 holdings), embrace the fewer constraints the structure gives to stock selection, and to employ gearing fairly consistently (see the Gearing section).

It is the board’s longstanding policy of supporting dividends with capital, that enables the managers to invest in lower yielding opportunities (which may have higher total returns). In turn this makes IVPU likely to be of interest as a complement to other UK Equity Income trusts and funds.

As we discuss in the Performance section, the early signs of James and Ciaran’s union are good. IVPU has outperformed the benchmark by c. 3.2% in the ten months since the merger. Relative to the peer group’s weighted average performance according to Morningstar, IVPU has now outperformed by 7.6%.

IVPU’s Discount to NAV has narrowed over the past couple of months, and now stands in-line with the UK Equity Income peer group average.

The early results of James and Ciaran’s co-managership are positive. Their aim – to ensure a balanced portfolio not subject to a narrow range of influences on returns – has so far paid off. The stock specific fundamentals of their stock-picking, and the diversification provided by portfolio construction has allowed IVPU to outperform the benchmark and the peer group by a decent margin. In our view this illustrates the value the new look IVPU brings to the UK Equity Income investment trust sector. The results suggest that IVPU is differentiated, and therefore complementary to existing UK Equity Income funds or trusts.

As one might expect after a merger, the market needed to balance in terms of supply and demand, and the discount initially remained wider than the peer group. However, we have now seen the discount narrow once again, and at 1.4% it stands in line with the average for the peer group.

It is possible that investors are increasingly recognising the attractions of IVPU’s solid dividend (yielding 3.5% at the time of writing), backed by capital. However, it is also possible that investors increasingly recognise the benefits of having two fundamentals-based managers that employ all of the advantages of the trust structure to deliver attractive returns over the long term. As a package, IVPU offers a differentiated exposure to UK equities, which many commentators believe look cheap when compared to other equity markets.