Abrdn’s Dunedin Income fund tops AIC UK Equity chart

Abrdn’s £440 million Dunedin Income Growth Investment Trust has reported net asset value (NAV) total return of 6.7% for the year to January 31, 2024, outperforming the FTSE All-Share Index return of 1.9%.

The strong performance resulted in the fund ranking top of the AIC UK Equity Income sector by NAV total return for the year.

The fund’s five-year NAV total return is 43.8%, with the company ranking third out of 20 in the AIC UK Equity Income sector by NAV total return. 

Dunedin Income Growth reported record revenue return for the year of 13.54p per share, an increase of 4%, and total dividend for the year of 13.75p per share, an increase of 5%.

Dunedin Income Growth aims to achieve growth of income and capital “from a portfolio invested mainly in companies listed or quoted in the United Kingdom that meet the company’s sustainable and responsible investing criteria as set by the board.”

The largest investments in the fund’s portfolio included AstraZeneca, Sage, Unilever, TotalEnergies, Relx, London Stock Exchange, Diageo, National Grid, Intermediate Capital, Chesnara, Taylor Wimpey, SSE, ASML, Prudential, Weir Group, M&G, Games Workshop, Volvo, Sirius Real Estate, Morgan Sindall and Nordea Bank.

Rebecca Maclean

The fund is managed by Ben Ritchie and Rebecca Maclean, who wrote: “The portfolio remains highly differentiated compared to both peers and its benchmark.

“It remains the only UK Equity Income investment trust with a formal sustainability approach. The active share of the portfolio is 76%, while the number of holdings is a focussed group of 35.

“We see attractive opportunities in innovative mid-sized UK companies and have 25% of the company’s assets in the FTSE 250 Index and 50% in UK large companies.

“We utilise the company’s flexibility to invest overseas with an allocation of up to 25% to high quality overseas companies, offering diversification and unique exposures …

Ben Ritchie

“We are pleased with the company’s income progression in the year. The revenue earnings per share of 13.54p exceeded our expectations and represents an increase of 4.0% over the previous year.

“Special dividends were paid by Volvo and Softcat in the year. A number of holdings delivered strong dividend growth, including Games Workshop, Morgan Sindall, Novo-Nordisk, Relx, and Sirius Real Estate.

“We continued writing options based on our fundamental analysis of holdings in the portfolio and this has been a benefit to the company by diversifying and increasing the level of income generated.

“The UK market concluded the year with a modest increase, despite experiencing some volatility throughout the year. The company benefited from positive sector allocation given its underweight exposure to the basic materials sector, which underperformed due to lower commodity prices associated with weaker Chinese activity.

“The portfolio’s overweight position in the technology sector, an area with numerous quality and growth characteristics that we focus on, proved beneficial to performance.

“The company’s sustainable investment approach targets investment in high-quality, sustainable leaders and improvers across the market and we continue to engage with investee companies. Filters are applied to the universe to reduce exposure to sectors and companies facing the highest environmental and social risks.

“During the year, the investable universe provided a tailwind to relative performance, primarily due to its lower exposure to basic materials. While the primary focus of the company is on selecting high-quality, sustainable companies, we continue to monitor factor risks presented by this approach and remain confident that it aligns with positive outcomes for shareholders. 

“Encouragingly, fundamental analysis and stock picking contributed positively, with the market rewarding companies that demonstrated attractive growth and improving fundamentals.

“In the healthcare sector, Novo-Nordisk announced a series of trial data indicating that the anti-obesity drug Wegovy not only leads to weight loss in patients but also reduces the risk of cardiovascular events. The drug targets a significant unmet need, obesity, with attractive long-term supply/demand dynamics and the shares responded very favourably.

“The accounting software firm Sage exceeded expectations with accelerating revenue growth, driven by its US cloud accounting software product, Sage Intacct. Upon purchasing shares in late 2022, we anticipated that the company was at a growth and margin inflection point, which has subsequently materialised.

“Sage’s transition to subscription contracts and product innovation form a strong foundation for sustained growth in the medium term.

“Relx is performing better than anticipated due to its investment in data analytics and decision-making tools, which enable customers to extract more value from its platform. With the valuation at a discount to US peers, mainly due to its UK listing, we continue to believe it is a compelling opportunity.

“As addressed in last year’s Annual Report, UK domestic and mid-sized companies’ underperformance in 2022 resulted in heavily discounted valuations, but we anticipated that long-term alpha generation from UK mid-sized companies would return.

“This trend of underperformance continued through to October 2023 due to concerns about sticky inflation, recession risk and market liquidity headwinds, before sharply reversing in the last quarter of the financial year.

“The holding in Intermediate Capital rebounded strongly, while UK construction companyMorgan Sindall and large housebuilder Taylor Wimpey saw share price recovery as fears of a deep UK recession and house price deflation moderated.

“Taylor Wimpey’s unique dividend policy, based on net asset value rather than earnings, ensured a visible and healthy shareholder distribution …”