Schroder Income matches benchmark beats peers – Schroder Income Growth says that, for the year ended 31 August 2017, the company returned 14.3% in NAV terms, matching the All-Share Index and ahead of the AIC UK Equity Income peer group average of 13.0%. The share price increased by 18.8% in total return terms during the year, as the share price discount to NAV continued to narrow, falling from 10.2% to 6.9%. The directors have decided to pay dividends totalling 11.2p for the year, a rise of 5.7% over the previous year.
The manager’s report says that stock selection within Financials (notably Nordea Bank and life insurance companies Legal & General and Aviva) was the key positive. Shares in Nordea Bank benefited from the Trump-inspired optimism earlier in the period. Legal & General and Aviva were two of the main detractors last financial year but they stuck with them.
The portfolio also benefited from its exposure and stock selection within Consumer Goods, in particular Bellway and Taylor Wimpey, Burberry and Unilever. Housebuilders Taylor Wimpey and Bellway detracted from returns last year after the Brexit vote, on fears over a potential collapse in consumer confidence hitting housing. They say that they believed that supply/demand dynamics remained favourable, government support for the sector was likely to be maintained in the form of Help to Buy and low mortgage rates, so valuations and dividend yield remained attractive.
They added luxury goods company Burberry last year, having highlighted its potential for faster-growing dividends, with the shares having de-rated to attractive levels as the market focused on near-term trading issues and a slowdown in key emerging markets. The shares were boosted after the investment vehicle of a Belgian financier disclosed a stake.
On the negative side, ITV suffered amid concerns over advertising revenues and the challenge to TV viewing posed by the likes of Netflix and Amazon. Education and publishing company Pearson warned that it did not expect to meet its profit goal for 2018 and has cut its dividend. They continue to hold the position as the US higher education courseware business transitions towards a digital proposition. The company has the potential to cut costs further, make additional disposals of non-core assets, and return capital to shareholders.
Resource sectors performed strongly following the commodity upturn. Despite holding Rio Tinto, the single largest contributor to relative performance, the portfolio suffered from not owning Glencore, and being underweight the mining sector. The position in BT has also disappointed, with the share price falling on revelations of fraud in their Italian division, as well as a tougher regulatory environment.
SCF : Schroder Income matches benchmark beats peers