Columbia Threadneedle trust defends approach despite lagging benchmark

Manager said FTSE oil giants’ returns are not sustainable


The Columbia Threadneedle High Income Trust trailed its FTSE All-Share benchmark during the year to 31 March, as its lack of exposure to the largest FTSE 100 names proved to be a drag on returns.

The trust’s net asset value (NAV) total return was -0.4% for the year, underperforming the 2.9% return posted by its benchmark.

Manager Philip Webster said not owning BP, Unilever, AstraZeneca, Shell and HSBC had been a 4.3% drag on relative performance over the year, but he defended his stance “on quality grounds”.

“It has taken a war and energy crisis for these names to deliver decent returns on capital employed, a level which I don’t believe is sustainable – unless of course you can provide assurance that the oil price is going back to $100 a barrel,” he said.

Including the 15% attribution to European holdings, approximately half of the trust’s exposure is to businesses outside the FTSE 100. Webster said this was by design, differentiating the trust from some of its more “index-tracking” peers.

The FTSE 100 rose 5.4% over the 12 months to 31 March, while the FTSE 250 fell 7.9%, and the FTSE Small Cap (ex-investment trusts) dropped 12.9%.

Having produced a total return of 0.6%, the trust’s ordinary shares also underperformed, while its B shares faired better with a 2.3% return.

Ordinary and B share prices stood at discounts to NAV of 8.9% and 6.1% respectively, though these were tighter than at 31 March 2022.

The trust’s chairman Andrew Watkins said investing in UK-quoted equities for income and capital growth had not been a walk in the park in recent times, adding that the trust’s underperformance relative to its benchmark across the year was “not unexpected”.

Watkins said this year marked the tenth consecutive year of dividend repayment increases, and added that at 31 March 2023, the ordinary shares and B shares yielded 6.7% and 6.5% respectively.

Total distributions to shareholders increased by 1.1% to 5.51p per share compared to the previous year. 

Looking ahead, Webster concluded: “This year will likely see investor sentiment wax and wane, however we will manage this period through the relative safety of quality business models with strong balance sheets and pricing power. These companies will be the ultimate winners and so the portfolio is well placed to capitalise on the upside.”

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