Seven trusts with a dividend yield above 4%
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Schroder Income Growth
Investment trust
Launched in 1995, Schroder Income Growth Fund’s principal aim is to provide real growth of income in excess of the rate of inflation. It invests mainly in the shares of UK larger and medium sized companies although it can also invest some of the portfolio in the shares of firms listed abroad.
Our opinion
Schroder Income Growth is a solid operator which does what it says on the tin – it’s a consistent performer, targeting the shares of UK companies paying dividends that should grow faster than the rate of inflation. The trust has raised its dividend each year for the past 25 years, making it an ideal option for income seekers.
Trust manager
Founded in London in 1804, today Schroders operates in more than 25 countries, employing more than 5,000 people, close to the markets in which they invest. Schroders is listed on the London Stock Exchange and invests in a range of asset classes including equity, fixed income, multi-asset and alternatives.
Sue Noffke is a UK equity fund manager at Schroders, and a founding member of the Prime UK Equity team established in 2006. She has managed Schroder Income Growth Fund plc since July 2011. Sue joined Schroders in 1989 as a sector analyst and has been a fund manager since 1993. She has a degree in Business Administration and Biochemistry from Aston University.
Sue NoffkeTrust manager
Investment board
The five strong investment board is chaired by Bridget Guerin. Bridget is vastly experienced having held numerous roles in the industry including director of Schroder Unit Trusts Limited between 1993 and 1999. She was also the managing director of Matrix Money Management Limited, from its launch in 1999 until March 2011. Bridget is also an independent non-executive director of Charles Stanley Group PLC, of Mobeus Income & Growth VCT plc and of Invesco Perpetual UK Smaller Companies Investment Trust plc. The remaining board members are David Causer, Victoria Muir, Ewen Cameron-Watt and Fraser McIntyre.
Investment process
Schroder Income Growth invests primarily in above-average yielding UK equities but up to 20% of the portfolio may be invested in the shares of companies listed on recognised stock exchanges outside the UK.
The investment process starts with idea generation, with investment ideas coming from a variety of sources, such as industry research and quantitative analysis.
The research stage focuses on factors that influence a company's ability to create value for shareholders over the long term. The team meet with company management in advance of investing and meet most FTSE 350 companies each year to review the investment case of companies not held in the trust. Large and mid-sized companies form the majority of the portfolio.
In order to meet the trust’s income objectives and to provide diversified sources of income, the team looks at both yield today and growth in the future.
Regular contact with companies is an important element of monitoring holdings in the portfolio. In addition, the team’s focus on out-of-favour stocks for new ideas means there are inevitably ESG factors that individual companies need to improve over time.
ESG
ESG - Integrated
ESG factors are integrated throughout the investment process for the whole of the Schroders company, this trust included. ESG analysis helps determine the sustainability of a company’s earnings and potential risks.
Schroder’s ESG work begins with their ‘SustainEx’ tool developed in-house by a 25 strong central ESG team. Sustainex has won a number of awards and continues to be upgraded all the time. It quantifies the positive and negative impacts companies have on society. Most approaches measure impact relative to a benchmark where as SustainEx calculates a quantifiable overall impact. There are over 45 positive and negative externalities which have been drawn from over 400 academic studies and are applied to 9,000 global companies. The tool helps fund managers to identify previously unaccounted for ESG risks and helps them to build these risks into their valuation framework.
Each individual strategy has their own ESG specialist on the team. In addition to SustainEx, analysts also use the Context tool which allows analysts to add their own input. It is also used in the valuation process, with higher discount rates applied to weak ESG companies. Some companies ESG will be so weak that they are considered uninvestable. ESG also helps shape portfolio construction. Those stocks with a higher ESG risk may have a reduced weight in the portfolio, or if the risk is high enough, no position at all.
Risk
As an income-based portfolio, risk tends to be lower than those vehicle’s targeting growth. The trust is well-diversified and has risk embedded throughout the process. With exposure to mid-caps, performance is somewhat linked to the domestic outlook for the UK economy.
Gearing
Schroder Income Growth is allowed to gear up to 25% and also has a £35 million, 364 day revolving credit facility in place. Historically, the gearing has ranged between 5-20%.
Read more about this fund
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