Dunedin Income Growth, which has just announced results for the year ended 31 January 2017, says that its NAV return for the year was 19.2%, just behind the All-Share Index which returned 20.1%. Shareholders suffered from a widening discount however, leaving the with a return of 16.5%. The revenue return per share for the year was 12.55p, compared with 12.11p for the previous year. Three interim dividends of 2.575p per share have already been paid and the Board is proposing a final dividend of 3.975p per share, to make a total dividend of 11.7p per share for the year, an increase of 2.6% on last year.
Ben Ritchie’s manager’s report says that, from a relative return perspective this was a year of turbulent equity market conditions. The fund experienced strong outperformance over the first half of the year as it benefitted from the impact of the EU referendum and the recovery of a number of companies that had proved challenging in the previous twelve months. In the second half of the year, continued strength in some of the mining companies that the fund did not own and banks to which it was underweight, alongside some difficult trading at Berendsen and Capita, proved detrimental, leading the portfolio to underperform the All-Share Index for the year.
Over the year as a whole the weakness of Sterling boosted the value of a number of overseas holdings such as Total and Zurich Insurance Group. This currency effect also drove up the share prices of UK listed companies with substantial overseas exposure, of which it has a significant number, such as Unilever and Compass Group. In the second half this was somewhat offset by the prospect of rising interest rates which negatively impacted investors’ perception of more “bond like” investments like regulated utilities and real estate companies such as National Grid and Unibail-Rodamco.
While exposure to the Mining and Oil & Gas sectors proved a headwind to relative performance, they say it was pleasing that commodity and emerging market related holdings such as Weir Group, John Wood Group, Rotork, Standard Chartered and BHP Billiton, all of which had suffered in the previous couple of years, staged substantial recoveries in absolute value. While Dunedin Income Growth underperformed the wider market it did do substantially better than many of its peer group trusts largely because it retained these kinds of exposure in contrast to many others. The managers also remained committed to owning some higher yielding companies such as HSBC, Royal Dutch Shell and BP. Given the focus on income and the lowly valuations and high yields that these companies were trading on twelve months ago, they seemed a natural home for a portion of capital and, in general, performed strongly. While it is not currently fashionable, they do believe that income funds need to provide income and that offering an overall yield above that of the wider market is an important part of the fund’s proposition.
DIG : Dunedin Income Growth just behind benchmark