SCHRODER INCOME GROWTH: Good at avoiding economy’s potholes

As the name implies, investment trust Schroder Income Growth was established to provide shareholders with increasing income. It’s a job entrusted to Sue Noffke, head of UK equities at asset manager Schroders – and so far she hasn’t let the trust’s investors down. Listed on the UK stock market, the £204m fund has had 27 years of annual dividend growth and Noffke is determined to keep going.

“Income growth is what our shareholders want,” she says, “and it’s our responsibility as managers to make sure we deliver it. There will be potholes along the way, but our job is to avoid them and keep our investors happy.”

Since Noffke took over the helm of the trust in March 1995, the biggest pothole she’s had to negotiate has been the drying up of dividend income in response to the pandemic and lockdowns.

The trust managed to grow its dividends by using income reserves built up over many years – and designed for use in years like 2020 and 2021.

Noffke adds: “I see revenue seeping into the trust’s reserves in good times to pay out when the going gets tough, like repairing the roof when the sun is out.” The trust currently has the equivalent of ten-and-a-half months’ worth of income in store to draw from if needed.

Like most income-oriented trusts, the Schroders Fund distributes income on a quarterly basis. The amount it pays out is on the high side – equivalent to 4.5 per cent per annum against an average of 3.9 per cent for UK equity income trusts.

Rival trusts paying higher income in terms of returns include JP Morgan Claverhouse (5.1 per cent), City of London (5 per cent) and Lowland (5 per cent).

The trust generates its income from a 43-member portfolio, filled with well-known names. Banks represent a large interest at 12 percent, with HSBC and Lloyds in the top ten. It also has interests in NatWest and Standard Chartered.

Other key holdings include insurer Legal & General which earlier this month raised its 2022 dividend by five per cent – ​​and Whitbread, owner of Premier Inns. It also has a stake in private equity group 3i, which is a majority shareholder in fast-growing European non-food discount retailer Action.

Noffke is also a big fan of bowling operator Hollywood Bowl, which her customers say offers a great value 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 think – and that all the gloom and desperation caused by Liz Truss’ failed attempt to pass unfunded tax cuts was vastly exaggerated. “When you talk to companies, there’s less gloom, less despair,” says Noffke.

The shock to global stock markets following the collapse of the US-based Silicon Valley Bank has negatively impacted the trust’s assets. Noffke says: “I expect markets to remain volatile in the near term, but I believe the trust’s focused, yet diversified portfolio of attractively valued and income-producing companies will not be harmed over the longer term.” The overall performance numbers for Schroder Income Growth are robust.

Over the past three and five years, it has outperformed both the peer group average and the FTSE All-Share Index, with returns of 71 and 32 percent respectively. But over the past year, performance has lagged the market.

The total annual costs are reasonable at 1.18 percent. The fund’s stock exchange identifier is 0791586 and the market ticker is SCF.