SCHRODER REVENUE GROWTH: £204m trust that avoids potholes in the economy
As its name suggests, Schroder Income Growth investment company is created to provide growing income to shareholders. It’s a job for Sue Noffke, head of UK equities at asset manager Schroders – and so far she hasn’t let the trust’s investors down. The £204m fund, listed on the UK stock exchange, has 27 years of annual dividend growth under its belt and Noffke is determined to maintain it.
“Revenue growth is what our shareholders want,” she says, “and it’s our responsibility as managers to make sure we get there. There will be potholes along the way, but our job is to avoid them and keep our investors kind.
Since Noffke took over as helm of the trust in March 1995, the biggest pothole she has had to negotiate is the drying up of dividend income in response to the pandemic and lockdowns.
The trust has managed to increase its dividends by tapping into income reserves built up over many years – and designed for use in years like 2020 and 2021.
Noffke adds, “I see income building up in trust reserves in good times to pay when the going gets tough, like fixing the roof when the sun is shining.” The trust currently has the equivalent of ten and a half months of income up its sleeve to draw on if necessary.
Like most income-oriented trusts, the Schroders fund pays quarterly income. The amount it distributes is high – equivalent to 4.5% a year, compared to an average of 3.9% for equity income trusts in the UK.
Rival trusts that pay higher income in terms of yield include JP Morgan Claverhouse (5.1%), City of London (5%) and Lowland (5%).
The trust generates its income from a portfolio of 43 people, full of household names. Banks make up a large stake at 12%, with HSBC and Lloyds among its top ten positions. It also has stakes in NatWest and Standard Chartered.
Other key holdings include insurer Legal & General which earlier this month raised its dividend for 2022 by 5% – and Whitbread, owner of Premier Inns. It also has a stake in private equity group 3i, the majority shareholder of fast-growing European non-food discounter Action.
Noffke is also a big fan of ten-pin bowling operator Hollywood Bowl, which she says is providing customers with a value-for-money experience at a time when households are watching every penny they spend.
The fund manager says the UK economy is in better shape than some commentators believe – and that all the gloom and desperation sparked by Liz Truss’ failed attempt to introduce unfunded tax cuts was greatly exaggerated . “When you talk to businesses, there’s less gloom, less desperation,” says Noffke.
The shock to global stock markets caused by the demise of US-based Silicon Valley Bank negatively impacted the trust’s assets. Noffke said, “I expect markets to remain volatile in the near term, but I believe the focused, yet diversified portfolio of attractively valued, income-generating companies will not be compromised in the longer term. Schroder Income Growth’s overall performance is strong.
Over the past three and five years, it has outperformed both its peer group average and the FTSE All-Share Index with returns of 71% and 32% respectively. But over the past year, its performance has underperformed the market.
Total annual charges are reasonable at 1.18%. The fund’s stock market identifier is 0791586 and its ticker symbol is SCF.