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Invesco Income Growth outperforms in first half

Invesco Income Growth’s interim results for the six months ended 30 September 2015 show the fund outperforming the FTSE All-Share index, returning -3.5% on net assets against -7.2% for the index. The return to shareholders was -5.0%. the first two quarterly dividends total 4.3p, up from 4.2p for the equivalent period last year.

Ciaran Mallon’s investment manager’s report says there were positive performances from a range of the portfolio’s holdings. Veterinary services company CVS continues to expand rapidly and profitably through acquiring businesses in the highly fragmented and fast growing veterinary market. The increased prevalence of pet insurance, which drives demand for higher cost services, as well as the company’s online animal pharmacy, labs and crematoria businesses, should further underpin high levels of growth in the medium term.

Soft drinks business Nichols has benefited from focusing on its core Vimto brand, which offers growth potential both in the UK and in targeted overseas markets. Young & Co’s Brewery has delivered impressive like for like sales growth in a declining beer market as it benefits from the sale of its London brewery and its focus on the acquisition and roll out of premium pubs.

The defensive nature of the tobacco sector has stood it in good stead in a low growth environment. Imperial Tobacco benefited particularly during the period from the acquisition of certain US brands and production facilities from the
merged Lorillard and Reynolds American tobacco businesses – a deal which will be strongly earnings enhancing for Imperial and underpin its dividend growth potential.

The portfolio’s performance benefited from its zero weighting in the mining sector, which was negatively impacted by the fall in commodities prices.

The oil & gas sector also performed poorly over the period, impacted by an oil price falling to under $50 a barrel. The portfolio is underweight in this major sector relative to its benchmark index, but does have holdings in BP and Royal
Dutch Shell, which saw their share prices decline over the period. Both companies are undergoing major cost cutting and cut backs in production, in an industry where costs had risen along with oil prices. These two companies benefit from strong balance sheets and have a shareholder focused dividend policy.

The holding in G4S fell over the period, despite good results and management delivering on their turnaround plans. We believe the valuation looks attractive and have added to the portfolio’s holding.

The holding in Drax continued to underperform. Falling power prices have impacted negatively on the company’s profitability, but more significant were the cuts announced in the July budget to the climate change exemption tax. This represents disappointing news for Drax, but we feel share price reaction has been unduly negative for a company which provides over 7% of the UK’s electricity requirements.

IVI : Invesco Income Growth outperforms in first half

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