At a time when the global economy, financial markets and listed vehicles are going through some upheaval, there are a number of investment trusts that have stood the test of time. For instance, Dunedin Income Growth is the second-oldest investment company, dating back to 1873. It started out with railroad bonds in the US, but has evolved into a solid, reliable UK-focused income and growth trust.
Manager Rebecca Maclean says while the investment strategy has changed, the parameters have not.
The trust still looks to achieve balanced growth and income from a diversified portfolio of high-quality companies and is always searching for businesses that can be resilient through the cycle.
Dunedin Income Growth has only 36 holdings, so adopts a concentrated approach. Maclean and co-manager Ben Ritchie aim to ensure there is competition for capital in the portfolio.
She says: “We have a team of analysts and we leverage their best ideas. In addition, we draw on insights from other managers – Charlie Luke from Murray Income, or Iain Pyle who manages Shires, plus the smaller companies team. We are constantly debating.”
The managers’ quality approach sets a high bar for inclusion in the portfolio, while a sustainability overlay also excludes a number of areas. Maclean explains: “That includes tobacco, defence, most of the miners and any gambling companies. It is around 25% of the index.”
However, she adds, the quality bar is a higher hurdle. “There are companies that are very dependent on external factors, and it’s hard to make a quality case for them.” She admits that can affect performance. “In recent years, we have been underweight the banking sector. They have rallied as interest rates have fallen, but it is a competitive industry, driven by interest rate policy, with very low barriers to entry, no brand value, no through-cycle growth. Because of that we’ve been underweight.”
The trust is multi-cap and has an overweight to mid caps. While this has been a detractor over the past year with the mid-cap sector widely unloved by investors, Maclean says it is a rich source of lower valued opportunities. “We still see lots of opportunities in the mid-cap space to gain exposure to innovative, high-quality companies, so we are keeping that strategic overweight.”
Read the rest of this article in the March issue of Portfolio Adviser magazine