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Fund Profile

Schroder Income Growth 20 February 2023

Disclaimer

This is a non-independent marketing communication commissioned by Schroder Investment Management. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
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Overview

Schroder Income Growth Fund (LON:SCF) has an objective to generate real growth in income and capital. The lead manager is Sue Noffke and alongside her are co-managers Andy Simpson and Matthew Bennison. The team are essentially bottom-up stock-pickers seeking mispriced stocks. They run a concentrated portfolio of between 35 and 45 stocks, seeking to identify companies with strong fundamentals that the market has failed to value appropriately. Given the income objective, the team place an emphasis on balance sheet strength, cash generation and the potential of a company to pay sustainable long-term dividends.

Sue and the team are style-agnostic in their approach to running SCF’s portfolio. Any styles or themes that do emerge are as a result of the bottom-up stock picks. Investment themes that have emerged include a number of stocks involved in energy transition and infrastructure, and those which have inflation-protection properties or are resilient franchises. The team’s long-term approach lends itself well to the explicit integration of ESG analysis and focus on active ownership, as these are issues that tend to play out over years and not months.

The performance of SCF has been impressive, the trust beating the benchmark over the short, medium and long term (see Performance section) and its income generating capacity is strong. Its current dividend yield is approximately 4.2%, materially better than that of the benchmark. The underlying portfolio’s income has broadly recovered back to the pre-pandemic levels, ahead of the wider market and the dividends were fully-covered over the last financial year, whilst revenue reserves are strong. SCF sits amongst the AIC’s ‘Dividend Heroes’ list, having consistently raised the dividend every year, since launch in 1996, with a growth rate comfortably ahead of inflation (see Dividend section).

We believe the strong performance track record has helped SCF’s discount to narrow over the years, where it now trades around par. The latest gearing level is approximately 12% and its latest OCF is 0.74%.

Analyst's View

Sue and the team’s high-conviction approach to running the portfolio has rewarded investors well over various time horizons. Their disciplined fundamentals-based valuation approach has resulted in well-timed entries and exits in key stocks, such as Shell, and positioned the portfolio well to meet some of the challenges investors are likely to face, including higher levels of inflation and the need to decarbonise and head towards net zero.

We believe the team have balanced the portfolio well to continue to deliver on its strong current level of income through the more resilient stocks amongst the financial sector, as well as utilities and energy sectors. Meanwhile, strong income growth and capital growth potential is found in the portfolio’s outsized exposure to the consumer discretionary sector and overweight exposure towards mid and small caps. Whilst there may be concerns in the market over growth stocks, SCF’s mid and small-cap positions have a tendency of not being expensively priced.

Overall, we believe that SCF is an attractive proposition for income investors looking for real growth in income and capital over the long term. We note that, thanks to the gearing, it has a high level of exposure to the market, which brings risks in falling markets but could benefit shareholders if the current renewed optimism about 2023 proves warranted.

Bull

  • Consistent track record of income growth easily beating inflation over longer-term
  • Deep knowledge and experience of the management team combined with access to analytical resources of the wider group
  • Aligned to long-term structural growth themes to allow income growth

Bear

  • Short-term inflation likely to be higher than income growth
  • Gearing can magnify downside
  • Mid-cap overweight may bring volatility
Continue to Portfolio
2024 Kepler Income & Growth Rated Fund

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

Fund History

19 Apr 2024 (Don’t) forget the price tag
With the dollar rallying once again, investors ignore foreign currency movements at their peril…
08 Mar 2024 Ready steady go
We look back at the first week of our event, discussing sectors ripe for recovery…
28 Feb 2024 Catch a falling star
Our analysts discuss three discounted sectors that could be due a rebound…
21 Feb 2024 Pitch doctoring
Our analyst argues the upcoming budget should see radical action to boost the UK market…
08 Mar 2024 Schroder Income Growth
Sue Noffke
Rewatch this webinar as part of our month-long online series 'Themes for your ISA in 2024' hosted by the team at Kepler Trust Intelligence throughout March...
Watch Recording
26 Jan 2024 Fund Analysis
SCF has outperformed the index over the long term and boasts a premium yield to the market…
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…
12 Dec 2023 UK equity’s income opportunity with SCF manager Sue Noffke - Podcast: Trust Issues #23
SCF Manager Sue Noffke tells us why the trust has geared up and is overweight small and mid-cap stocks…
27 Oct 2023 Results analysis: Schroder Income Growth
SCF has a strong track record in delivering both income and capital growth over the long-term…
02 Jun 2023 Investing for income in a world of inflation
The attractive alternatives to cash for UK income investors...
20 Feb 2023 Fund Analysis
SCF has a strong track record of delivering income and capital growth…
11 Jan 2023 Solving the Rubik’s Cube
We reveal the winners of our investment trust ratings for 2023…
06 Jan 2023 Investment trusts: a rare opportunity in UK small and mid-sized companies
Opportunity knocks for UK small and mid-sized companies – find out why...
16 Dec 2022 Investment Trusts: opportunities in all market conditions
How are current market conditions impacting the Schroders investment trust range?
12 Aug 2022 Fund Analysis
Attractive income and growth prospects from a portfolio of UK companies…
20 Jan 2021 Kepler's top-rated investment trusts for 2021
We update our annual quantitative ratings for investment trusts…
29 Apr 2020 Kepler Rated: Schroder Income Growth
SCF is a UK focused trust which has raised its dividend every year for the past 24 years...
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%....
04 Feb 2020 Fund Analysis
A UK focused trust which has raised its dividend every year for the past 26 years...
05 Dec 2019 Holding something in reserve
A sterling bounce poses a threat to UK dividends - we look at how UK equity income investment trust managers stand prepared…
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…
03 Jun 2019 Knowledge is power
Schroder Income Growth's Sue Noffke discusses how she tactically employs gearing in her trust, the benefits of a fixed capital base and how she balances the demands of a board...
28 May 2019 Fund Analysis
A trust with an exceptional track record for not only outperforming the benchmark, but also for delivering dividend growth...
07 Nov 2018 Everything you wanted to know about Brexit but were too afraid to ask...
Schroders' Sue Noffke answers 23 key questions and highlights some investment opportunities as negotiations move to a crucial stage...
20 Nov 2017 Thin ice...
Our analysis shows the extent to which funds in the UK equity income sector are concentrated on just a few dividend paying stocks…
17 Nov 2017 Fund Analysis
A core UK income trust, managed by an experienced team at Schroders...
12 Jun 2017 MAYDAY!
As the Conservative party founders, we examine the impact of last week’s disastrous election on trusts...
07 Jun 2017 Omnishambles...
Given the huge levels of political-induced uncertainty, we analyse recent drivers and themes within the UK equity market ahead of the upcoming election
30 May 2017 Income funds in focus
We introduce a new rating system designed by us to identify trusts which generate a real, dependable income without sacrificing capital....
11 May 2017 Storm proofing...
Our research shows dividend cover among UK equity income trusts is at its highest level in decade...
07 Mar 2017 A challenge of perception
Asian Total Return Investment Company chairman David Brief says the trust's total return focus is misunderstood by many investors....
20 Feb 2017 Income is king...
The team at Schroders highlight why investors should consider investment trusts if they are aiming for a growing income stream
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