Troy Income & Growth Trust (TIGT) invests predominantly in UK equities. Managed by Francis Brooke and Hugo Ure of Troy Asset Management, the trust reflects Troy’s emphasis on capital preservation over the cycle, and owns a highly liquid portfolio of between 35-50 stocks matching Troy’s preferred investment characteristics.
Whilst income generation is a goal of the trust, the managers of TIGT also seek to ensure this income is growing in real (inflation-adjusted) terms and is accompanied by capital growth as discussed in the ‘Dividend’ section. Revenue reserves could help support the dividend in the near future.
Within TIGT the focus is very much on bottom-up stock selection and seeking ‘quality’ companies, though they 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 certain instances where only one of these criteria is met.
Net Asset Value (NAV) and share price volatility have typically been below that of the wider market. The latter is partially a function of the discount control mechanism (DCM) intended to improve liquidity and ensure the trust trades near to NAV with relatively low discount volatility detailed in the ‘Discount’ section. In recent years this has generally led to the trust issuing shares, helping to grow assets without diluting existing shareholders.
Troy recently celebrated the 10th anniversary of managing the trust, and over this period returns from TIGT have substantially outstripped those of the FTSE All Share Index. This has been achieved without the use of gearing. Recent returns have remained strong, with TIGT outperforming the index, having largely kept pace in rising markets whilst exhibiting lower drawdowns than the wider market.
TIGT has outperformed the index over a number of years, with lower levels of volatility and retains a disciplined investment approach. A relatively concentrated portfolio and a preference for holding significant stock positions means investors are better able to benefit from the managers’ analysis of individual companies, and TIGT has generally demonstrated positive alpha under the current management. At c. £265m, the trust is at an attractive level of assets, with good liquidity in its shares, and could be considered an attractive core holding in UK equities for most investors. This is particularly true for investors seeking to generate income from their portfolio, with TIGT offering a reasonable yield made resilient through reserves, whilst the DCM has been effective at lowering discount volatility since introduction.
Meanwhile, the shared investment philosophy across Troy Asset Management means that the managers have recourse to significant analytical resources. Recent moves to reduce the utilities exposure have had the effect of reducing the sensitivity to interest rates, and therefore one of the risks to stocks with their preferred characteristics. However, a general rally in UK stock markets might be reasonably expected to see TIGT trail on a relative basis due to its defensive nature.
|Tends to offer superior downside protection relative to the market||May lag on a relative basis if UK equity markets rally|
|Track record of growing dividends above inflation, which remain well covered||Negative sensitivity to moves in GBP have been a tailwind, but could reverse|
|DCM keeps liquidity high and price volatility low|
|Fundamental independent research and access to a highly experienced team|