Thursday, 18 June 2015

Invesco Income Trust - Final Results

This trust has been managed by Ciaran Mallon since 2005 and is part of the UK income sector. The investment objective is to provide shareholders with long-term capital growth and real long term growth in dividends from a portfolio yielding more than the FTSE All-Share Index.

It is one of a basket of income trusts held in my SIPP flexi-drawdown portfolio. It is one of the smaller trusts in my collection with total assets of £181m. I generally like to hold the larger trusts as the expense ratio tends to be lower due to economies of the larger operation. Having said that, the expenses for IVI are not too bad for an actively managed trust - 0.90% incl. transaction charges. Furthermore, from 1st April 2015 the management fees have been renegotiated and for the first £150m of market cap, the fee will be reduced to 0.65% p.a. and then 0.55% above this level.

The trust has issued its annual report for the 12 months to 31st March 2015 (link via Investegate).

On a total return basis, net asset value (incl. dividends) increased by a very acceptable 10.3% over the year - ahead of the benchmark FTSE All Share rise of 6.6%. The trust has outperformed its benchmark index over 1, 3, 5 and 10 years - obviously, if this can continue, its worth paying a little extra in charges compared to the lower cost trackers.

3 yr chart IVI v FTSE All Share
(click to enlarge)
Pleasing as this performance appears, it is worth pointing out that the trust holds all UK-listed equities and the UK is a small sector of the global market - less than 10%. Returns for sector companion Edinburgh which holds a more widely diversified portfolio were 16.5% over the corresponding period and the return for the Vanguard LifeStrategy 100 was 15.4% for the 12m to March 2015.

The board are recommending a final dividend of 3.75p which will make a total of 10.10p an increase of 2.5% on the previous year (2014 was 9.85p). Dividend CAGR over the past 10 years is 7.3%. The current yield is around 3.5%.

The balance of the portfolio is weighted towards FTSE 100 large caps comprising 70%, FTSE 250 23% and the rest made up of smaller companies and some fixed interest. The top 10 holdings have a significant weighting in the traditional big hitters; tobacco - 8.4%, pharma - 7.3% and utilities - 5.5%. Also good to see Next - 2.9% and L&G - 2.9% making the top ten.

Commenting on outlook, the trust manager says:
"The FTSE All-Share Index has risen strongly over the last six years and now stands at an all-time peak level. Although political uncertainty in the UK has been resolved for now, there are other headwinds to withstand in the short term, including weakening demand in the Chinese economy and the political backdrop internationally, but valuations suggest that the long term outlook for returns from investing in the stock market are still attractive.

My investment strategy remains intact - I am seeking companies with strong fundamentals, with sensible management whose interests are aligned with shareholders and with a low risk balance sheet. I remain confident in the long term return potential of the holdings in the Company’s portfolio".

For those looking for a predictable, steadily rising income, investment trusts can be a good option however, they are not without risk - especially the more highly geared trusts. Over the past year, the borrowing level for IVI has reduced from 9.9% to 8.3%.

I am happy to continue with the trust in my portfolio - the only slight reservation is that revenue reserves remain a little on the light side at 91% but have significantly improved from 84% last year. I would be happier if this could be increased to over 100%.

As always, please DYOR.

4 comments:

  1. A good write-up as usual John. I wonder how independent the board of an investment trust can be when the trust is named after the fund management group that manages the trust's investments?

    Do trusts like this every sack their fund managers and change their names to disassociate themselves from the old manager?

    John

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    1. John,

      Many thanks and an interesting question you ask - to which I do not have an answer.

      You may recall the situation with Edinburgh last year when the independent board had to decide between sticking with the fund manager, Neil Woodford who had made a decision to leave Invesco to start his own management company. After some deliberation they made the choice to stay with IP having renegotiated the charges and appointed Mark Barnett as the new manager of the trust (and a good job he has done in his first year).

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  2. Seems like a good trust to hold. I do believe I had a small holding in this a few years back but sold as I needed the cash. After reading your write up I really wish I had held onto it.

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    1. Laura,

      Thanks for stopping by with a comment.

      If you need the cash, you need the cash! It has performed well enough in my SIPP over recent years - a good steady Eddie but obviously limited to how well the UK-listed equities perform.

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