Troy Income & Growth 03 August 2023

Troy Income & Growth Trust’s (LON:TIGT) long-term aim is to provide investors with durable UK equity market exposure, focussed on identifying the highest quality companies capable of generating sustainable income and capital growth. The overarching capital-preservation philosophy of Troy Asset Management and the fundamental, bottom-up focus of the investment team has resulted in a relatively benchmark-agnostic portfolio compared to other strategies within the UK Equity Income sector.

As discussed in Portfolio, the approach of TIGT’s managers, Blake Hutchins and Hugo Ure, is centred around balancing quality, growth, and income. To achieve this, they seek companies that demonstrate robust cash flows throughout the market cycle in addition to low levels of capital intensity. This has led to a significant allocation to consumer staples and to companies and sectors that can be associated with generating recurring revenue streams. The lack of exposure to the high-yielding energy sector has impacted relative performance versus the peer group and benchmark over the short term, but Blake and Hugo maintain such areas are unlikely to provide sustainable dividend growth over the long term. They are comfortable forgoing the volatility associated with these sectors to maintain the trust’s superior risk and downside protection characteristics (see Performance).

TIGT has delivered Dividend growth over the past two financial years, with the operational resilience of the portfolio reflected through the growth of the revenue per share of its underlying holdings. As they find the valuations of UK equities relatively attractive, the managers have cautiously increased Gearing, which at the time of writing is 3%, whilst maintaining a strict Discount control mechanism which helps dampen discount volatility and increase shareholder liquidity.

We believe TIGT offers a unique core exposure to a selection of high-quality UK companies which through their superior operational characteristics are capable of delivering sustainable dividend growth over the long term. In our view, it is an attractive way to invest over the long term for investors seeking a core holding, with the DCM providing some reassurance that discount volatility will be kept to a minimum and they will be able to buy and sell close to par.

Blake and Hugo focus on identifying capital-light companies that are less exposed to market cyclicality. This has resulted in a lack of exposure to high-yielding and top-performing sectors over the past couple of years. However, we believe the strength shown by several portfolio companies through their most recent dividend announcements highlights their resilience during an uncertain time for UK equities – an attractive feature in a volatile environment. Furthermore, Blake and Hugo have cautiously employed gearing to take advantage of the relatively attractive valuations, topping up existing holdings, and introducing new ones. As a result, we believe there may be a greater benefit for longer-term investors who have the patience to see Blake and Hugo’s strategy play out, whilst minimising downside risk compared to those strategies resolute on delivering an immediate high yield.