Disclaimer

This is a non-independent marketing communication commissioned by Seneca Investment Managers. 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.

Seneca Global Income & Growth Trust (SIGT) released its interim results this morning, reporting an NAV total return of 10.5% for the six months to 31 October 2020. This was above the CPI +6% annualised benchmark, which returned just 3.6% over the period. Shares traded very close to NAV throughout the period, and as such the share price return was 10.6%. During this time, the trust had an annualised volatility of 22.5%, in comparison to 27.6% for the FTSE All-Share Index.

SIGT struggled in performance terms during the market decline from late February to late March and this was principally due to the value investing style employed by the managers. However, the chairman states that “SIGT’s strong performance during the six-month period under review has not particularly been related to any change to the investing style background…rather SIGT’s performance can largely be credited to strong share price performances from a number of the investment trust holdings within Specialist Assets (as wide discounts narrowed) and to the portfolio’s bias to UK mid- and small-cap companies, where some liquidity returned to that part of the market”.

SIGT yielded 4.8% as of the end of the period, and has paid two dividends in line with the previous year. It is anticipated that these levels will be maintained for the full year, with revenue generation being well diversified across asset classes.

Kepler View

The managers of SIGT look to achieve real (i.e. inflation-adjusted) growth in capital and income over the longer term, through investment in direct securities and via third-party fund managers. Collectively they employ a unique value-influenced decision-making process, across a wide range of assets. Currently, SIGT is comprised of UK and overseas equities, fixed interest, specialists funds and property, with different management approaches applied to each.

As we discuss in our recent note on the trust, this approach provides the managers with a great deal of flexibility when investing and allows them to choose investments which they see as best placed to perform in any given market. Additionally, the ability to mix asset classes freely adds valuable diversification.

The managers are proudly contrarian, and as we have discussed in our previous articles with them have no interest in ‘following the herd’ when it comes to chasing popular stocks. In recent weeks, as the market rotated on hopes of a COVID-19 vaccine, this saw SIGT benefit as investors rediscovered previously eschewed stocks where the outlook had grown excessively negative.

The performance of the trust over the six month period was strong relative to the benchmark and we note that it was achieved at a lower annualised volatility than the FTSE All-Share. That said the benchmark was adopted in 2017 and the board believes that it can be dangerous to look at short-term comparisons, instead favouring measurements over a ‘typical investment cycle’ which the board believes is at least five years.

A key characteristic of the trust is the value-oriented framework that they employ. The board and managers believe “an inflection point for the growth vs value investment style factors may well have taken place on 9 November with the news of the Pfizer/BioNTech vaccine trial’s success”. This means looking forward, in their view, it is “possible to imagine a timetable for recovery even if it takes many months and is difficult, whereas before 9 November this was not possible”.  SIGT has the potential to take advantage of this. Over the past decade we have seen ‘value’ companies drastically underperform growth. However, the team is able to point to some excellent returns from individual stocks in the portfolio, even in this unsought area of the market.  The recent sell-off gave the team the opportunity to initiate positions in such unloved companies as M&G; and as the market has started to rotate in recent weeks, companies such as these have been outperformers.

While investors wait for a broader ‘value’ turnaround, the trust delivers a significant yield of 4.8%, and remains well diversified across asset classes.

Currently SIGT is trading on a discount of 0.1%.

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