The board of Aberdeen’s £440 million Dunedin Income Growth Investment Trust has approved “greater flexibility to invest in Aerospace & Defence, permit investment in Nuclear Energy and modify restrictions around investment in Natural Resource companies.”

The news came as Dunedin Income Growth published its financial report for the year ended January 31, 2026, showing net asset value (NAV) total return was 8.2% and share price total return was 13.8%.

The fund said its performance for the year lagged the wider market by some margin, with the benchmark FTSE All-Share Index producing a total return of 21.1%.

Nonetheless, total dividend will be 19.10p per share, an increase of 34.5% on the previous year.

The fund’s managers Ben Ritchie and Rebecca Maclean said its relative underperformance was predominantly driven by lower returns from high quality companies and “partly by strong outperformance from sectors of the market excluded by our sustainability criteria.”

The managers said: “We estimate that the impact of sustainability exclusions reduced returns by around 5%.”

The fund’s chair Howard Williams wrote: “While it is disappointing to see the company’s NAV and share price underperform, the benchmark’s strong return was largely driven by returns in specific sectors, namely, Banking, Aerospace & Defence and Basic Materials, to which your company had limited exposure.

“This positioning reflects the Investment Manager’s quality‑focused and sustainability‑aligned investment approach which continued to face headwinds as investors favoured cheaper, more cyclical stocks.

“Performance was also constrained by AI‑related uncertainty, which led to some indiscriminate selling in technology and information services companies within the portfolio, despite these holdings maintaining robust operational performance.

“Overall, a small number of large benchmark constituents not held in the portfolio, combined with style headwinds and sentiment pressures, drove the relative underperformance.”

Dunedin Income Growth’s biggest investments at January 31 included TotalEnergies, NatWest-RBS, National Grid, Haleon, RELX, Prudential, London Stock Exchange, AstraZeneca, Weir Group, Diageo, Gaztransport & Technigaz and Tesco.

Dunedin Income Growth said: “During the year, the board and investment manager spent considerable time reviewing the negative screening criteria to ensure that they remained appropriate to the company’s objectives. Following this work, the board has approved a number of changes which are expected to be introduced during the first half of the current financial year.

“These changes are evolutionary in nature and are designed to align with best practice, which has also evolved in recent years, increase reporting transparency and provide the investment manager with greater flexibility in managing the portfolio.

“At the headline level, the most significant changes in terms of increasing the investment manager’s flexibility are to allow greater flexibility to invest in Aerospace & Defence, permit investment in Nuclear Energy and modify restrictions around investment in Natural Resource companies.

“As a consequence, the negative screening criteria, which currently exclude approximately 23% of the benchmark FTSE All-Share Index, will reduce the exclusions to around 13%.”

Dunedin Income Growth fund managers Ritchie and Maclean wrote: “Relative underperformance was predominantly driven by lower returns from high quality companies and partly by strong outperformance from sectors of the market excluded by our sustainability criteria.

“Helping to offset these dynamics were a number of exceptionally strong individual stock contributors, while most companies held in the portfolio continued to deliver robust operational results, including good earnings growth, strong cash generation and ongoing capital returns …

“The UK equity market delivered another exceptional return over the year, reaching new all-time highs. Benchmark gains were driven by a relatively narrow set of cyclical areas, with strength in Banking, Aerospace & Defence and Basic Materials playing a prominent role.

“In contrast, the higher quality part of the market lagged significantly. This was particularly evident in Technology and Information Services, where concerns around the impact of artificial intelligence (AI) weighed on investor confidence, despite strong underlying financial delivery.

“As an illustration, the MSCI UK Quality Index was up just 5.1% over the period. It was also a period where we saw strong returns from sectors which we are largely precluded from investing in given our sustainability focus, namely Aerospace & Defence, Tobacco and Metals & Mining.

“Rolls Royce (not held in the portfolio), for example was up over 100% over the course of the year. We estimate that the impact of sustainability exclusions reduced returns by around 5%.

“This matters for the company because we are intentionally positioned to meet our long-term objective of delivering consistent growth in both capital and income.

“We run a high‑conviction portfolio, focused on selecting high quality, financially resilient businesses with durable growth prospects and attractive long‑term total return potential, within the company’s sustainable and responsible investing approach.

“This combination typically leads us to be more selective in the most cyclical parts of the market, and in some sectors the sustainability framework further raises the hurdle for investment …”