Securities Trust of Scotland (STS) is a broadly diversified global equity income portfolio that aims to deliver a rising level of income and long-term capital growth from a diversified portfolio of equities.
At the helm of the portfolio is Mark Whitehead – who joined the group as head of income in 2015, spearheading a resurgence on income for the trust. Mark employs an unconstrained, bottom-up approach to stock selection and has introduced a number of measures to boost the trust’s capacity to generate income, including the disciplined use of derivatives and the increased use of gearing. Additionally, the trust has the capacity to pay income from capital, helping smooth dividends regardless of the economic conditions.
Starting with an investable universe of around 3,000 stocks, meticulous analysis narrows the universe down to just 500 names. Particularly prevalent within the process is credit analysis and stress testing, where the manager examines a company’s free cashflow through different scenarios and in turn, their capacity for sustainable dividend growth. This is a particularly unique and important tool in the current volatile conditions where in the UK particularly, we have seen many of the highest yielders cut their dividends.
Since Mark’s appointment in May 2016, the trust has performed strongly relative to the peer group benchmark, outperforming both the IA and AIC Global Equity Income total NAV returns of 47.4% and 53.8% respectively over the same period. Alongside capital appreciation the trust has a progressive dividend policy, aiming to offer investors inflation-beating dividend growth. Currently the trust offers a solid yield of 3.2%.
The trust is trading on a discount of 4.3%, the second widest in the sector. This is despite the fact the trust has been the strongest performer in the seven-strong sector over the past year, and in the top three for the past five years.