24th Mar 2014 12:23
LONDON (Alliance News) - Dunedin Income Growth Investment Trust PLC Monday said it underperformed its benchmark in its last financial year, as its portfolio's bias towards larger, more internationally-focused companies meant it missed out on some of the benefits of the UK's economic recovery.
With the trust's assets managed by Aberdeen Asset Managers Ltd, net asset value per share rose by 8.7% in total return terms, while the FTSE All-Share Index increased by 10.1% in the year to January 31 2014.
Chairman Rory Macnamara noted his disappointment at failing to outperform the benchmark for the first year since 2008/09.
"Strategic choices and the manager's own style and stock decisions are each partly responsible," Macnamara said in a statement.
"The manager's investment style, with an emphasis on good quality businesses, conservative balance sheets and with a prudent focus on valuations was not ideally suited to a market focused on growth," Macnamara added.
Strategies that aim for income growth as well as capital growth can mean portfolios are balanced more in favour of higher quality businesses that provide a healthy dividend payout. When stock markets move upward sharply, as they did last year, this can result on such a strategy missing out on some capital growth.
Macnamara said the trust may also face challenges because the UK's economic recovery has resulted in appreciation of sterling.
With the trust's bias towards larger and more international companies it has missed out on some of the gains achievable from the UK's growth. However, it also has greater exposure to the dollar and to emerging market currencies.
"Thus we expect for DIGIT that, at current rates of translation, currency movements will be adverse in 2014/15 - negatively affecting companies that make profits outside the UK and also those dividends that are declared directly in overseas currencies," Macnamara said.
"Over the medium-term we still consider that a portfolio of businesses that have the option to make money in a wide range of different geographies will be an enduring advantage in helping to achieve diversification and to ensure a healthy range of growth opportunities," he added.
The trust increased its full-year dividend by just over 3% to 11.1 pence.
The trust's objective is to achieve income and capital growth from a portfolio of investments in companies largely listed or quoted in the UK.
It has the freedom to invest up to 20% of its gross assets overseas.
Dunedin shares were Monday quoted at 267.40 pence, down 2.10 pence, or 0.8%.
By Samuel Agini; [email protected]; @samuelagini
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