UK Income with Growth Trust
A high quality total return UK fund including fixed income exposure and a focused equity portfolio combining strong long-term themes and recovery potential.
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"The combination of asset allocation, capitalising on long-term themes and looking for good recovery opportunities give this Fund the potential to generate a sound total return over time."
- Performance
- Why recommend this fund to your clients?
- A closer look at the Fund
- What does the Fund invest in?
- Fund suitability
- Investment philosophy
- Top 10 holdings
- Sector allocation
- 2 stock profiles
- Fund manager strategy and outlook
- Investment process overview
- Fund manager and investment team
- Fund facts
- How to invest
Performance of £1000 invested over 5 years
Value to latest month end, total return, bid to bid price, Net income re-invested.
Past performance is not a guide to future performance and the value of this investment can go down as well as up. This is not a guaranteed investment and you may get back less than you have put in.
Cumulative performance (% change)
| 1 year | 3 years | 5 years | Since launch (25/09/89) | |
|---|---|---|---|---|
| Fund | -5.7 | 16.6 | 5.3 | 385.1 |
| Sector Median | -1.2 | 16.5 | 3.2 | 390.3 |
| Quartile Rank | 4th | 2nd | 2nd | 2nd |
Percentage Growth to latest month end, total return, bid to bid price, Net income re-invested.
Discrete performance (% change)
| 30/09/10 - 30/09/11 |
30/09/09 - 30/09/10 |
30/09/08 - 30/109/09 |
30/09/07 - 30/09/08 |
30/09/06 - 30/09/07 |
|
|---|---|---|---|---|---|
| Fund | -5.7 | 13.8 | 8.6 | -15.2 | 6.4 |
| Sector Median | -1.2 | 10.3 | 8.6 | -17.4 | 6.2 |
Percentage Growth for discrete 1 year periods, bid to bid price, Net income re-invested.
[back to top]Why recommend this fund to your clients?
- Sector has performed well relative to single and multi-asset classes for a considerable period of time.
- Fund has demonstrated an attractive total return relative to the wider equity indices throughout different market conditions.
- Dividend yield remains attractive in low interest environment with possibility of some growth in future years.
- Industry-leading social responsibility expertise, integrating environmental, social and governance issues into our decision making process.
A closer look at the Fund
What is the Fund's aim?
The investment aim of the Fund is to provide first quartile performance over a rolling three-year period, measured against the UK Equity & Bond Income sector.
The Fund aims to achieve a total return comprising an equity capital return exceeding that of the FTSE All-Share Index, and a yield at least 20% greater than the FTSE All-Share Index. This will be achieved through investing in an equity portfolio and a range of fixed interest securities.
[back to top]What does the Fund invest in?
The Fund invests in UK equities and UK fixed income securities. UK equities are selected from the FTSE 350 and fixed income from a broad range of corporate bonds and gilts.
Asset allocation will depend upon the relative attractions of the fixed interest and equity markets but is expected to be predominantly equity-dominated (typically 70-75% of assets).
Fund suitability
The Fund may be suitable for investors looking for:
- a fund with a strong track record on delivering above average total return and where a large proportion of that return comprises yield
- a fund that has lower volatility in comparison to all-equity funds
- a fund that will consider social responsibility as part of its overall investment process.
Investment philosophy
Our investment philosophy and style is best described as follows:
- Focused - The portfolio will typically have between 40-60 holdings and over 30% of assets in the top 10 holdings.
- Long-term - Investment holding periods of three to four years.
- Stockpicking - We construct portfolios on a bottom up basis.
- Responsible - Embedded environmental, social and governance (ESG) analysis provides a broader perspective and represents the views of our customers in the investment process.
Our fixed interest approach is to combine good quality corporate bonds with a selection of gilts so as to provide for a higher level yield and some capital performance.
The overall investment philosophy is to allocate capital between equities and bonds, to maximise total return and deliver the best possible combination of dividend growth and capital performance. The Fund does not mechanically buy yield but analyses the longer-term cash flow dynamics of the relevant asset to determine the sustainability of dividend payments over time.
Top 10 holdings
(as at 30/06/11)
| % of Fund | |
|---|---|
| British American Tobacco | 4.4 |
| Royal Dutch Shell | 4.1 |
| GlaxoSmithKline | 3.9 |
| Vodafone Group | 3.9 |
| BP | 2.4 |
| Imperial Tobacco Group | 2.4 |
| AstraZeneca | 2.2 |
| Unilever | 2.1 |
| BG Group | 1.9 |
| BT Group | 1.9 |
| Total | 29.2 |
Sector breakdown (as at 30/06/11)
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2 Stock profiles
Stock example - SABMiller
SABMiller is an international brewing company with extensive operations throughout Asia, Latin America and the United States. It has established dominant market positions in many emerging markets with rising consumption patterns. Tight control of costs combined with prudent asset allocation of the strong cash flows have resulted in strong returns in recent years. SABMiller is well placed to grow as emerging markets develop, incomes per capita rise and consumers trade up to premium products.
Stock example - BG Group
BG is an international oil and gas group with strong interests in the production and distribution of liquefied natural gas. The group retain strong management and a production outlook that compares favourably with many global oil companies. BG retains excellent exposure to the recently developed Brazilian oil fields which should underpin longer-term dividend growth of 15-20%.
[back to top]Fund manager strategy and outlook
Over the last three months the UK equity market has risen 1.0%. Considering the background has featured social disruption in many North African and Middle East economies, leading to a significant spike in the price of oil, and a devastating earthquake in Japan, this should be considered a somewhat resilient performance. Global economic data and corporate cash generation continues to be a key component of equity market strength.
Given ongoing valuation support and generally low interest rates we would expect further upside to the UK equity market. Performance in the stock market has recently been dominated by stocks in the oil and gas and mining sectors that have reacted to recent global events. However, the Trust has focused on stocks that have enduring earnings through the business cycle and pricing power in the face of growing inflationary expectations. Two such stocks recently added to the fund include Croda, the specialist chemicals company, and Rightmove, the online property search company. Both companies provide strong, niche products and services that confer pricing ability and growth opportunities.
In terms of asset allocation, our preference has been for equities over bonds. Rising soft and hard commodity prices have raised inflationary expectations in recent weeks resulting in weak gilt prices with yields rising from 3.39% to 3.69% over the three-month period. Currently the Trust holds no gilts based upon valuation concerns and all the bond exposure is in credit.
The fund is ranked third quartile over the last 12 months. Over three years the Trust outperformed the median by 1.8% and is ranked as second quartile. The strategy continues to be one of combining top-down asset allocation with effective stock picking to produce a portfolio with strong capital and dividend growth prospects.
[back to top]Investment process summary
1. Initial screening
- the key investment universe, from which stocks are selected, is predominantly the FTSE 350
- the key investment universe is filtered for stocks which provide potentially above average total return properties principally through premium rates of yield and dividend growth
- detailed research and analysis is then undertaken on the stocks identified.
2. Security selection
- stocks are assessed against a number of key criteria such as valuation, management quality, and environmental, social and governance performance
- valuations are predominantly cash-based. In particular, the analysis looks behind stock dividend yields to evaluate the underlying dividend growth potential.
3. Portfolio construction
- stock positions are determined primarily by the risk/reward potential of a particular investment
- the portfolio is focussed in nature, and will typically hold between 40-60 holdings.
4. Risk management
- risk is assessed prior to investment in the research process by considering the potential for capital loss
- risk is then assessed across the portfolio by considering sector and factor risk (for example interest rate sensitivity)
- weekly risk and performance monitoring occurs with independent review by the Head of Equities.
Fund manager Neal Foundly
Neal Foundly currently manages the UK Income with Growth Trust having previously managed our institutional portfolio responsibilities for over 20 years. During his time at the Co-operative he has also been a sector analyst covering most of the market sectors. Previous to this Neal worked as a UK Equity Analyst at Sun Alliance in London, for 3 years. Neal has a BA (Hons) in Economics from Leicester University. He is a qualified Associate Member of the Society of Investment analysts (now CFA, UK).
[back to top]Why choose The Co-operative Asset Management?
The fund management activities of The Co-operative Financial Services (part of The Co-operative Group) are undertaken by The Co-operative Asset Management. The Co-operative is a household name in the UK offering a wide range of services to consumers including food, pharmacy, travel and other financial services such as insurance, banking and mortgages.
The Co-operative Group has over 12 million customers, of whom over 290,000 are investors in our Unit Trust range, amounting to over £2 billion of assets under management.
Our distinctive approach is reflected in a number of unique investment credentials. We are the only UK fund manager to:
- apply a common core approach to responsible investment across all the funds we manage
- apply active engagement across all the funds we manage
- feed valuable business insights gained from our engagement process back in to company analysis performed for investment purposes.
The Co-operative Asset Management was also the first UK investor to publish its Company AGM voting record on its website in 2002†, a practice now increasingly adopted by fund management groups offering SRI.
In advocating The Co-operative Asset Management to clients, advisers can be assured that they are recommending:
- Britain's most ethical brand, The Co-operative Group*
- a responsible investment approach which fully integrates financial and ESG criteria in stock selection
- an investment process characterised by clear and informed views on why companies are undervalued and offer good long-term prospects
- an investment resource comprising experienced and committed individuals working to deliver out-performance while effecting positive change in the companies they invest in.
*An independent consumer survey carried out in 2007 and 2008 found that The Co-operative was the most ethical brand in Britain for both years. The Co-operative Group was ranked number one for 2007 and 2008 with The Body Shop and Marks and Spencer ranking second and third respectively. The GFK NOP Ethics Brand Survey was conducted in the US, UK, France, Germany and Spain amongst 5,000 individuals in total. The study found that consumers are increasingly choosing to buy brands which they believe to be ethical, with many willing to pay a premium for an "ethical guarantee" (GFK NOP Press Releases 2007 & 2008).
Fund facts
| Manager name & location | Neal Foundly, Manchester |
| Fund type | Unit trust |
| Launch date | 25th September 1989 |
| Index/benchmark | FTSE All-Share |
| Sector | UK Equity and Bond Income |
| No. of stocks (as at 30/09/11) |
127 |
| Fund size (as at 30/09/11) |
£403 million |
| Fund yield | 3.70% |
| Distribution frequency | Quarterly |
| Distribution dates | May, August, November, February |
| Lipper ID | 60009201 |
| Sedol code | 159805 |
| PTR (as at 30/06/11) | 135.67% |
| TER (as at 30/06/11) | 1.53% |
The Co-operative Financial Services has signed up to the internationally recognised UN Principles for Responsible Investment. They reflect the increasing relevance of environmental, social and corporate governance issues to investment practices and in signing the Principles, the organisation publicly commits to adopting and implementing them.
[back to top]How to invest
The UK Income with Growth Trust is available to investment professionals through a number of platforms including Cofunds, Fidelity and Hargreaves Lansdown:
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