Schroder Income Growth (SCF) aims to provide real growth of income, in excess of inflation, while growing capital for investors. The long-serving lead manager, Sue Noffke, invests primarily in above-average yielding UK equities, but also has the capability to invest up to 20% of the portfolio outside the UK.
Over the past five years the trust has been an impressive performer, outperforming the benchmark (FTSE All Share), the AIC UK Equity Income peer group and the open-ended peer group. Despite a tough 2018, the trust has recovered well in 2019 and has delivered close to 12.6% (to the 22nd of May), outperforming the benchmark and the peer group by c.1% respectively. Alongside strong capital growth, the trust has delivered outstanding long-term dividend growth. The trust is an AIC Dividend Hero, having increased dividends for each of the past 23 years. Currently, the trust yields 4.1%.
Fundamental research sits at the heart of the process and the experienced team look to take advantage of market inefficiencies, identifying out of favour companies that will outperform over the long term. Typically a holding will be within the portfolio for 5-7 years, however, the manager has no issue cutting her losses should the investment proposition change. Currently, the manager believes there are a vast amount of opportunities within the UK, as relative valuations remain low in a historical context and comparable companies that are domiciled elsewhere trade at considerably greater valuations. As such, only 2.7% of the portfolio is domiciled outside the UK. The largest overweights within the portfolio are towards media, financial services and personal goods, and underweights are towards beverages and banks.
Over the past few years the discount has narrowed somewhat, and it now trades at 4.1%. This is in line with the sector average but is 2.5% narrower than the trust's 12-month historical average (to the 22nd of May) of 6.6%.
There is plenty to like about Schroder Income Growth. The manager has an exceptional track record for not only outperforming the benchmark, but also for delivering dividend growth. Few trusts are able to boast the track record of dividend increases that Sue can, and the high level of revenue reserves makes it appear to be maintainable going forward.
Currently the portfolio is positioned to take advantage, over the long term, of the pessimism towards the UK. Obviously, this could mean that there continues to be volatility with the sector, however, should we see the issues surrounding Brexit resolve and the outlook for the global economy improve, SCF should stand to benefit.
Currently trading on a discount of 4.1%, the trust is trading in line with peers. However, we think this could be an attractive entry point to a trust that should trade closer to par.
|Long-term manager with an exceptional track record
|23 years of dividend increases, and the revenue reserves to maintain this despite potentially challenging economic conditions
||Could continue to be a volatile area to invest in over the short term
|Trades on a discount relative to the average peer