IVI : Invesco Income Growth just fails to match benchmark
Invesco Income Growth lagged the FTSE All-Share Index a little over the six months ended 30 September 2014, producing a total return on net assets of 0.7% and return to shareholders of 0.5% against a 1.6% return for the Index. The quarterly dividends were increased from 2.05p to 2.1p.
Ciaran Mallon’s manager’s report says “Key positive contributors to the performance of the Company’s portfolio in the period included the holdings in AstraZeneca, Pearson, Imperial Tobacco and Legal & General. AstraZeneca continued to grow its pipeline of drugs in development in 2014, with the company’s chief executive commenting at the time of its half year results in July that the company now had: “one of the most exciting pipelines in the industry with 14 assets in late stage development”. He also highlighted that there had been strong growth in emerging markets. The attractions of AstraZeneca’s pipeline were highlighted in April when Pfizer made a bid for the company which was subsequently rebuffed by the AstraZeneca board. The holding proved to be the most significant contributor to total return over the period.
Pearson’s share price retreated at the start of 2014 when the company revealed weak demand in the US – from where it derives around 60% of its revenue. However, during the period under review, it put in a strong showing. The company’s half-year results in July announced a further shift away from traditional publishing to digital and an expansion of its emerging market operations.
Imperial Tobacco saw its share price react favourably to news that it was to purchase some US cigarette brands from Reynolds American, whilst Legal & General, in its half year results, impressed the market by announcing a 21% increase in its interim dividend and at the same time reporting buoyant demand for retirement solutions.
Detractors to the portfolio’s performance included Tesco, GlaxoSmithKline and Croda International.
Whilst the widely publicised market share gains from the discount chains Lidl and Aldi were seen as headwinds that could be surmounted, Tesco’s recently disclosed accounting issues added significant uncertainty to the company’s earnings outlook and undermined the long term investment case. The shares have been sold.
GlaxoSmithKline, in its half year results to 30 June, reported increased competition and pricing pressure in the US respiratory market. Nonetheless the company announced an increase in dividend, and I view the current restructuring drive to reshape the business as positive for long term investors.
Croda International, a specialist chemical manufacturer with a diverse product and customer base, has been through a tough period in 2014 primarily as a result of a stronger sterling and a weakening European economy. The company reported in its July half year results that currency translation alone had reduced sales by 6.8%. However, at the same time it reported strong performance in Asia, and commented that robust cash generation continued to underpin investment in R&D, and new capacity. In addition, there has been a change in organisational structure whereby dedicated global teams for each product group have been assembled in order to accelerate international sales growth. I remain confident that this will be a rewarding long term investment.”