A good year for Invesco Income Growth

Invesco Income Growth’s results for the year to the end of March 2015 show the fund outperforming the FTSE All-Share Index by 3.7%, returning 10.3% to the index’s 6.6%. The return to shareholders was 9.9%. The total dividend for the year was 10.1p, up 2.5% on the 9.85p paid for the year ended 31 March 2014.

Ciaran Mallon’s manager’s report says holdings in the tobacco sector, notably Imperial Tobacco, contributed to the fund’s outperformance. Imperial Tobacco is buying some of US company Lorillard’s brands, including Winston and leading e-cigarette brand Blu, and strengthening its US position. The deal is expected to provide a near term boost to Imperial Tobacco’s earnings. The holdings in life insurance groups Friends Life and Legal & General delivered strong performances over the period. Friends Life benefited from news of an agreed purchase of the company by fellow insurance group Aviva, a deal which provides the combined entity with significant scope for cost savings and synergies, along with a strengthened balance sheet, which should underpin dividend growth. Since completion of the deal in April the investment in Aviva has been retained in the portfolio. Legal & General, meanwhile, reminded the stock market of the strength of its global business and of its cash flow, delivering a 21% increase in its annual dividend on the back of 10% increase in operating profits.

Other positive contributors included soft drinks business Nichols, whose key brand is Vimto, and Essentra, an
international supplier of speciality plastic and fibre products. Speciality chemical business Croda International had been through a difficult period in 2014, but  delivered a positive performance over the 12 months as a whole, as the company confirmed in November that it was seeing improved organic sales growth.

Detractors to the portfolio’s performance in the year included power suppliers Drax and Centrica, both of which were adversely affected by falling energy prices and political uncertainty ahead of the general election. The share price of Drax was additionally hit by the UK government’s decision to remove a future biomass subsidy and by possible EU intervention.

The holding in Tesco also delivered negative returns. Having initially seen the widely publicised market share gains by the discount chains Lidl and Aldi as headwinds that could be surmounted, it became apparent that the turnaround will take much longer than expected and will involve a much greater fall in profitability. Also niche clothing retailer N. Brown endured a challenging year, as the company seeks to move towards an internet offering and to diversify away from its traditional mail order base.

IVI : A good year for Invesco Income Growth