Thursday, 16 June 2016

Invesco Income Growth 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 £172m. 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.

The trust has issued its annual report for the 12 months to 31st March 2016 (link via Investegate).

On a total return basis, net asset value (incl. dividends) declined by -2.1% over the year - ahead of the benchmark FTSE All Share -3.9%. 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.

The zero weighting in the mining sector, where share prices have been negative and very volatile, was a positive for the trust over the 12m period.

Income

Earnings increased to 11.5p per share from 10.9p over the year, helped by some special dividends received. This has boosted the dividend reserves which now represent just over 100% of dividends paid out in the past year.

The board are recommending a final dividend of 3.8p which will make a total of 10.3p (2015 10.1p) an increase of 2% on the previous year. The current yield is around 4.1%.

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%. 

Commenting on outlook, the trust manager says:
"Notwithstanding its recent volatility, the UK stock market has risen strongly over the last six years. Market valuations, in terms of historic dividend yields and price earnings ratios, are near long term average levels, suggesting that that the long term outlook for returns from investing in the stock market are still attractive. However, there remains the possibility of further dividend cuts, while earnings growth for many companies and sectors remains elusive, or even negative, against a back drop of subdued economic growth and other uncertainties.

I believe it is sensible to remain conservative in my investment approach and seek to invest in companies whose prospects are not dependent on an improving economic outlook. I remain confident in the long term return potential of the holdings in my 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. This trust fared reasonably well in my recent post comparing  my basket of investments trusts -v- index funds.

I am happy to continue with the trust in my sipp drawdown portfolio.

As always, please DYOR.

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