SCHRODER INCOME GROWTH: Good at avoiding economy’s potholes

As its name implies, investment trust Schroder Income Growth is set up to deliver a rising income to shareholders. 

It is a job entrusted to Sue Noffke, head of UK equities at asset manager Schroders – and so far she has not let down the trust’s investors. The £204 million fund, listed on the UK stock market, has 27 years of annual dividend growth under its belt and Noffke is determined to keep it going.

‘Growth in income is what our shareholders want,’ she says, ‘and it’s our responsibility as managers to ensure we deliver it. There will be potholes along the way, but our job is to avoid them and keep our investors sweet.’

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

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

Noffke adds: ‘I see the squirrelling away of income into the trust’s reserves in good times to pay out when things get tough as akin to mending the roof when the sun is shining.’ The trust currently has the equivalent of ten-and-a-half months of income up its sleeve to draw upon if needs must.

Like most income-orientated trusts, the Schroders fund pays income quarterly. The amount it hands out is on the high side – equivalent to 4.5 per cent a year against an average for UK equity income trusts of 3.9 per cent.

Rival trusts that pay a bigger income in yield terms include JP Morgan Claverhouse (5.1 per cent), City of London (5 per cent), and Lowland (5 per cent).

The trust delivers its income from a 43-strong portfolio, full of household names. Banks represent a big holding at 12 per cent, with HSBC and Lloyds among its top ten positions. It also has stakes in NatWest and Standard Chartered.

Other key holdings include insurer Legal & General that earlier this month increased its dividend for 2022 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 tenpin bowling operator Hollywood Bowl which she says offers customers a good 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 despair triggered by Liz Truss’s failed attempt to introduce unfunded tax cuts was wildly overdone. ‘When you speak to companies, there’s less gloom, less despair,’ says Noffke.

The shock to global stock markets caused by the demise of United States-based Silicon Valley Bank has had an adverse impact on the trust’s assets. Noffke says: ‘I expect markets to remain volatile in the short term but I believe the trust’s focused, yet diversified, portfolio of attractively valued and income- producing companies will not be impaired in the longer term.’ The overall performance numbers for Schroder Income Growth are robust.

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

Total annual charges are reasonable at 1.18 per cent. The fund’s stock market identification code is 0791586 and its market ticker is SCF.