Fund Profile

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Troy Income & Growth. 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

Troy Income & Growth Trust (TIGT) aims to generate an attractive yield and a mixture of income and capital growth through investment, predominantly in UK equities. Managed by Francis Brooke and Hugo Ure of Troy Asset Management, the trust reflects the emphasis Troy as a house places on capital preservation over the cycle. The trust owns a highly liquid portfolio of between 35 and 50 stocks, matching Troy’s preferred investment characteristics.

Within TIGT, the focus is very much on bottom-up stock selection and seeking ‘quality’ companies, though the managers are cognisant of the wider market and economic dynamics. Whilst they prefer companies which exhibit non-cyclical characteristics with low capital intensity, they can be pragmatic in instances where only one of these criteria is met.

NAV and share price volatility have typically been below that of the wider market, with the latter at least partially a function of the discount control mechanism (DCM), which we discuss under Discount. In recent years demand has led to net share issuance, growing the assets within TIGT.

Whilst income generation and real growth in income are goals of the trust, the managers also seek to ensure income generation is not at the expense of capital growth. Changes in the investment portfolio, combined with the impact of the coronavirus pandemic on the aggregate UK market dividend, mean the portfolio-level dividend is likely to be supported by reserves in the current reporting year, as illustrated in the Dividend section.

As we discuss under Performance, TIGT has outperformed the FTSE All-Share since the current management took over, achieving this without using gearing and with lower volatility than the benchmark.

Analyst's View

TIGT has outperformed the index over a number of years, with lower levels of volatility. The management approach has consistently demonstrated greater protection on the downside, and TIGT once again outperformed significantly in the recent correction. Nonetheless, investors should remain aware that the nature of the investment process is such that TIGT may lag if we see further sharp, significant market rallies. Our analysis suggests that, following a period of such significant outperformance, TIGT tends to lag on a relative basis but generate better-than-usual absolute returns relative to its own history. A significant pick-up in inflation could prove a headwind to relative performance, and remains a risk.

The discount control mechanism has effectively controlled the discount, and ensured the managers had capital to deploy through share issuance during the market lows seen in mid-March. The ongoing adjustments to the portfolio, combined with the long-term impact of the pandemic on UK equity dividends, mean the board has seen fit to highlight a probable rebasing of the dividend in the financial year ending September 2021. The rationale for accepting a lower level of distribution from the underlying holdings, in exchange for superior growth potential in a market where payout ratios appear very extended, looks well founded in our view. With moves towards putting the dividend on a more sustainable footing, we think this is likely to necessitate less turnover in the future and at present reflects consistency in the management process.

bull bear
Tends to offer superior downside protection relative to the market A pick-up in global inflation expectations would likely prove a headwind
Discount control mechanism keeps liquidity high and discount volatility low Has tended to lag in a sharp market recovery
In recent years the managers have sought to address the probably unsustainable nature of market-level payouts, within the portfolio Portfolio-level real dividend growth seems unlikely to be achieved whilst the pandemic-related disruption and shift in the portfolio are ongoing
Continue to Portfolio

Fund History

25 Mar 2022 Slides and Audio: Troy Income & Growth
Download the presentation and listen to the audio from our 'Ideas for your ISA' virtual Spring event on 15 March...
23 Mar 2022 Fifteen ideas for your ISA
Slides and audio from our event last week, featuring fund managers running money in every major market in the world...
09 Feb 2022 The dividend dilemma
We examine the trade-off between earning a current high dividend yield and growing future dividends...
15 Dec 2021 Dividends in the time of corona
Investment trusts have proven their worth during the pandemic, delivering dividend growth despite the turmoil…
09 Nov 2021 Fund Analysis
TIGT’s managers’ commitment to quality remains unwavering in a changing UK market…
29 Sep 2021 Slings and arrows
Our analysts argue over whether it’s better to take arms against volatility in a portfolio, or to simply suffer it…
20 Jan 2021 Kepler's top-rated investment trusts for 2021
We update our annual quantitative ratings for investment trusts…
25 Nov 2020 Results analysis: Troy Income & Growth
We look at how TIGT has protected capital throughout the uncertainty of 2020, and how it can be a useful addition to income hungry investors’ portfolios…
24 Sep 2020 Fund Analysis
Seeking to identify and invest in a portfolio of high quality companies, TIGT seeks to generate sustainable dividends and income and capital growth...
06 Aug 2020 Recipe for disaster?
In this article, we assess whether the recent shift to concentrated portfolios has been beneficial or detrimental during corrections…
15 Jul 2020 Why stagflation is likely and how to protect your portfolio from it
Our analysis suggests a combination of cost-push inflation and economic hardship could lead to a short, but unpleasant, period of stagflation...
29 Apr 2020 On solid ground
Our analysis of discounts highlights trusts which are likely to offer significantly less discount downside from the current level…
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%....
07 Jan 2020 Fund Analysis
Seeking to identify and invest in a portfolio of high quality companies, TIGT seeks to generate sustainable dividends and income and capital growth...
06 Sep 2017 Fund Analysis
A concentrated UK income trust focused on delivering capital and dividend growth run via a conservative approach...
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