Next month’s five-year continuation vote at Invesco Global Equity Income (IGET) looks to be a shoo-in after the company reported a highly successful year for growth.
IGET grew its market value by 86% to £510m in the year to 31 May, principally helped by a successful merger with Franklin Global which swelled assets by 55% or £162m in February when holders of 96% of its shares opted to roll into the better performing rival.
With the shares buoyed by investor demand and trading at a small premium to net asset value (NAV), the investment trust also issued £78m of new stock during the year.
Investment returns swelled the company by another helpful 22.2% although this actually underperformed the 27.5% advance from the MSCI World index.
The company said the valuation-based approach of Invesco fund managers Stephen Anness and Joe Dowling struggled in the momentum-driven, AI fuelled markets at the end of last year.
Performance bounced back in the second half of its financial year with IGET claiming the strongest underlying NAV total return in the six months to the end of May.
Reflecting some of their caution at getting caught in a tech bubble, the trust ended the financial year with net cash of 3.1%, having begun the period with zero gearing or borrowing.
Nevertheless, the managers rode the AI boom well with four of their top five stocks involved in computer hardware or semi conductors: Dell, Texas Instruments, TSMC and ASML. However, they missed out on not owning Google parent Alphabet as it performed strongly.
Rolls-Royce also made a big contribution after announcing a record share buy-back and raising earnings guidance in February, boosted by demand across its civil aerospace, defence and power systems businesses.
On the downside, detractors to performance included 3i Group (III), the private equity company hit by falling sales growth at discount retailer Action, its largest investment. The managers retain their conviction and it remains their third biggest holding at 4.5%.
Universal Music Group and Denmark’s Novo Nordisk were also disappointments.
In line with its 4% dividend policy, which pays out 4% of NAV per share at financial year-end, the company has set a 16p target for this financial year, an increase of 18.5% over last year.
Shares in IGET have traded sideways since the end of May but over five years have provided a 102.7% total return. That should bode well for the continuation vote at the annual general meeting on 21 October.
Our view
Matthew Read, senior analyst at QuotedData, said: “We think IGET’s shareholders will be broadly pleased with these results. It has generated a strong absolute return and, while it has trailed its benchmark, the underperformance is relatively small in the context of a benchmark that was once again heavily influenced by a relatively narrow group of US and AI-related winners. The more encouraging point is that performance improved markedly in the second half as the market has become more discerning, while the longer-term record remains solid. Perhaps more importantly, the combination with Franklin Global Trust and strong investor demand have taken market capitalisation above £500m, which should improve liquidity and provide further economies of scale. Once you factor in another healthy increase in the dividend and a prospective 18.5% rise for the current year, IGET looks stronger than it did a couple of years ago.”
