Jonathan Brown and Robin West are fundamental stock pickers, with a strong valuation discipline. Within their peer group, they aim to achieve top quartile performance with below average volatility. As we discuss in the Returns section, they have consistently achieved this aim – largely through the application of the same investment process year after year, cycle after cycle.
Jonathan and Robin try not to take macro views, and they rely on fundamental bottom-up stock analysis. In terms of market-cap exposure, the trust tends to sit in the middle of the pack relative to peers – neither particularly heavily weighted to mid-caps nor to micro caps. The companies that the managers tend to invest in have both 'quality' and 'growth' characteristics. They look for businesses that have the potential to double in size over the next five years, and in typical Invesco Perpetual style, hold them for the long-term – their typical annual turnover is c. 25%.
The trust has now achieved five consecutive years of outperforming the benchmark. So far in 2019, IPU is ahead of the benchmark by 9.5% (to 2 October), and therefore on track for the sixth straight year of outperformance. The team has a preference for finding high quality businesses that are growing revenues and profits, and likes to buy them at what it sees as the 'right' valuation. When we spoke to the managers recently – consistent with their usual pattern of activity – they reported that they have been selling down more highly rated companies and recycling capital into smaller, less expensive stocks. As a result, with worries about growth faltering, IPU has been better protected and maintained its lead over the benchmark and peers.
With a yield of 3.6% on a historic basis, IPU pays amongst the highest level of dividend yield in the UK smaller companies sector. It is important to note that this yield is not achieved by the managers investing in companies which themselves provide a higher yield, but because the income from the portfolio is supported by capital reserves.
The managers believe that their portfolio of good quality businesses with multi-year growth trajectories will stand them in good stead. Jonathan believes that sticking to their principles is the only way to ride out the current difficult political backdrop.