Ben Ritchie, manager of Dunedin Income Growth Investment Trust

For the six months to July 31 2020, the company delivered weak absolute but positive relative returns. Despite the drop in NAV, the company outperformed its benchmark, the FTSE All-Share Index, which produced a total return of -17.8%.

The share price total return for the period was -13.8%, reflecting a widening of the discount at which the Company’s shares trade to the NAV.

The discount at the end of the period (on a cum-income basis with borrowings stated at fair value) was 6.4%, compared to 3.6% at the beginning of the period.

Revenue earnings per share declined by 8.6% during the period to 6.14p per share (2019: 6.72p). This fall was primarily driven by a series of dividend cuts from companies in response to the financial impact of COVID-19.

While the income performance was under pressure, it is worth noting that the company’s revenue generation has been materially better than that of the wider UK equity market.

During the period the Revenue Account benefitted from not holding a number of companies that have been traditional components of the portfolios of many UK Equity Income trusts, for example HSBC, Royal Dutch Shell and BP.

A first interim dividend in respect of the year ending 31 January 2021, of 3.0 p per share (2020: 3.0p), was paid on 28 August 2020 and the Board has declared a second interim dividend of 3.0p (2020: 3.0p) per share, which will be paid on 27 November 2020 to shareholders on the register on 6 November 2020.

David Barron, chairman of Dunedin Income Growth Investment Trust, said: “Whilst we have not been immune from the difficulties of 2020, we believe the robust relative performance of both our capital and income has validated our current approach. Despite the ongoing challenges, our dividend policy remains to grow the dividend faster than inflation over the medium term and, with the Company’s robust revenue reserves and the underlying dividend growth of the companies within the portfolio, the Board believes the policy’s continuation to be appropriate.”

“Although it is never good to report negative returns, the Board is encouraged to note the strong performance of the Company relative to the benchmark and its peers during recent periods. The Company has outperformed the benchmark over one, three and five years and, in terms of both NAV and share price total return performance, is one of the best performing investment trusts in the UK Equity Income Sector over each of these periods.”

Looking ahead, Mr Barron added: “As we look forward into the rest of the year and into 2021, the key is really whether the recovery that is underway can be sustained and, ultimately, what level of output can be reached.

“The prospects for global growth were modest and arguably deteriorating prior to the development of COVID-19 and so we wait to see what impact this has over the longer term dynamics.

“The Investment Manager retains a relatively cautious outlook and sees little reason to shift from a conservative focus on higher quality businesses, consistent with delivering your Company’s strategy. That said, they remain watchful for opportunities that may arise from any further dislocation to markets.”

Ben Ritchie, manager of Dunedin Income Growth Investment Trust, commented: “The outlook for the economy remains uncertain. Whilst we have seen a recovery start to take hold, the level to which the global economy recovers to and its ultimate growth trajectory remain unclear. Across many markets there are signs of positive progress as economies re-open, however there are also indications of a resurgence in virus cases in a number of countries.

“The economic recovery has been reflected in markets to a reasonable degree with a strong rebound since the lows of March, but significant challenges remain ahead. Overall, we see little reason to shift from our conservative focus on high quality businesses, where we specifically search for companies with drivers that are separate to the economic outlook, with exposures to powerful structural drivers such as the digitisation of industry, changing demographics or consumer trends.

“We remain confident that in the long run the strength of the holdings in the portfolio will prevail against these challenging market conditions and we remain watchful for further opportunities to take advantage of should there be further volatility ahead.”