Invesco Select: UK Equity 28 August 2019
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by Invesco Select: UK Equity. 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.
IP Select UK Equity Shares portfolio (IVPU) invests in UK equities with a highly active value strategy. The manager, James Goldstone, takes a contrarian approach, aiming to identify companies which in his view are under-appreciated by the market.
James’ current main focus has been on companies exposed to the UK economy and consumer, which he thinks have been egregiously undervalued thanks to worries about Brexit, particularly among overseas investors, leading to indiscriminate selling of UK-facing companies. However, this exposure is balanced out by holdings with international, mainly dollar earnings, which James thinks are undervalued for other reasons, which we explain in the portfolio section of this note. The oil and gas producers are a key example.
The period from 2016 to 2018 was a tough one for the trust thanks to the manager's domestic value play not coming off. However, in the 2019 rebound the trust has kept pace with the index and is ahead of its peers, helped by its cyclical tilt, gearing and higher weighting to large caps than the peer group.
The board aims to keep the discount close to NAV and has been highly active in using buybacks to do so. This means that even when the NAV total returns have been disappointing, investors have not suffered from a widening discount too, as they have with some other trusts in the sector. The current discount stands at 0.8% compared to a sector average of 10.2%.
Gearing has tended to be at the upper end of the permitted range under James’ management. This debt is not structural but reflects the valuation opportunity the manager sees in the UK market, and has come down in recent months as the market has rallied.
The dividend yield is 3.9%, paid quarterly, which is higher than any other trust in the UK All Companies sector. The board’s intention is to at least maintain the dividend in each year going forward and it has backed this up by using capital reserves to pay when necessary.