Schroder Income Growth says that, during the six months ended 29 February 2016, the net asset value produced a negative total return of 1.4%, broadly comparable to that of the FTSE All-Share Index, which fell by 1.2% over the period. The company’s share price declined by 8.5% in total return terms during the period as the discount widened from 1.5% at the start of the period to 8.7% as at 29 February 2016. They paid a first interim dividend for the year ending 31 August 2016 of 2.00 pence per share (2015: 2.00 pence per share) on 29 January 2016. The Board has since declared the payment of a second interim dividend for the current financial year of a similar 2.00 pence per share (2015: 2.00 pence per share), which was paid on 29 April 2016.
The manager’s report says positive stock selection in the portfolio offset a small negative contribution from sector selection and gearing, to leave the NAV return close to that of the index.
The portfolio benefited from strong stock selection in food producers (Greencore – ‘food-to-go’ producer), and by being overweight the tobacco sector (particularly Imperial Brands) which performed well due to relatively attractive valuations compared to other staples. Stock selection within banks also helped, largely by avoiding the shares of Barclays, Standard Chartered and RBS. Weak economic activity has provided a difficult trading environment for their investment bank arms, whilst they also face the prospect of reduced interest margins should interest rates remain lower for longer.
These positives were broadly offset by not owning brewer SABMiller when it was bid for, and disappointment from the holding in Pearson. The latter stemmed from weak US college enrolments, falling textbook sales and the threat from digital educational sources. Pearson has already taken steps to move away from paper-based literature and testing, and they take comfort from the group’s strong balance sheet which supports its dividend.
The other disappointment was in the life insurance sector where Aviva, Legal & General and Prudential were affected by the general stock market weakness, concerns over credit exposures, and potential regulatory change. As with Pearson, however, they remain confident, believing that these companies are not over-exposed to commodity-based borrowers, while each company is well-capitalised.
SCF : Schroder Income Growth in line with benchmark in first half