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.
Download product factsheet
"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 (to 30/06/10)
Percentage Growth to latest quarter end, total return, bid to bid price, Net income
re-invested. Source: Lipper
Cumulative performance (% change to 30/06/10)
| 1 year | 3 years | 5 years | Since launch (25/09/89) | |
|---|---|---|---|---|
| Fund | 20.8 | -6.3 | 25.9 | 364.2 |
| Sector Median | 16.9 | -13.2 | 9.7 | 322.2 |
| Quartile Rank | 1st | 1st | 1st | 1st |
Percentage Growth to latest quarter end, total return, bid to bid price, Net income re-invested. Measured against UK Equity & Bond Income Sector. Source: Lipper
Discrete performance (% change to 30/06/10)
| 30/06/09 - 30/06/10 | 30/06/08 - 30/06/09 | 29/06/07 - 30/06/08 | 30/06/06 - 29/06/07 | 30/06/05 - 30/06/06 | |
|---|---|---|---|---|---|
| Fund | 20.8 | -15.0 | -8.7 | 13.8 | 18.0 |
| Sector | 16.9 | -14.0 | -12.0 | 11.8 | 12.4 |
Percentage Growth for discrete 1 year periods, bid price to bid price, no charges, UK Net in fund currency. Source : Lipper
[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
Fund aims
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 30/06/10)
| % of Fund | |
|---|---|
| British American Tobacco | 3.9 |
| Standard Chartered | 3.1 |
| Rio Tinto | 3 |
| HSBC Holdings | 2.9 |
| AstraZeneca | 2.8 |
| Royal Dutch Shell | 2.5 |
| BG Group | 2.4 |
| Johnson Matthey | 2.3 |
| BP | 2.3 |
| Unilever | 2.3 |
| Total | 27.5 |
Sector allocation (to 30/06/10)
[back to top]
2 Stock profiles
Stock example - Standard Chartered
Standard Chartered is an emerging market bank which retains extensive interests throughout the Asian wholesale and retail markets. As governments look to deepen monetary policy at the same time as more companies access primary markets, Standard Chartered is well positioned for strong and sustainable profits growth. In addition, the possibility of greater consumer penetration of basic banking products provides a strong background for the group’s retail operations.
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%.
Fund manager strategy and outlook
Over the last three months the UK equity market has fallen by 11.8%. Markets have continued to remain concerned that recent softness in a number of US economic data points, coupled with the public debt problems in Europe, may result in the global economy experiencing a double dip recession. We believe that these concerns are overplayed and the emergence of Asian economies should result in a sustainable economic recovery, all be it somewhat muted.
In the last three months the Trust has outperformed the median of the peer group and was ranked in the second quartile. During this period the Trust has maintained a relatively high exposure to UK equities relative to credit and gilts. Equities outperformed against the FTSE-All Share over this period due to good performance from stocks such as Aggreko and Compass.
We believe the UK equity market remains attractive, based on low valuation and the maintenance of economic growth in spite of a growing number of elevated risks. Gilt valuation remains relatively poor given the current low level of yields, although credit is well positioned for corporate recovery and spreads are expected to further tighten. Our strategy is biased towards companies with favourable emerging market exposure, given their superior long-term growth prospects, but also includes a number of businesses with strong exposure in Western economies that are well positioned to meet the challenge of slower growth economies.
Over the last three months the asset allocation has been reasonably constant with equities accounting for around 65-70% of Trust assets and the balance predominantly in corporate bonds. During the quarter a new holding was initiated in WPP. WPP remains well positioned for continued momentum in global economic growth, particularly with regards its exposure to emerging economies within Asia and Latin America.
Over three years the Trust outperformed the median of the peer group by 6.9% and is ranked in the first 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 overview
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 and investment team
| Years in industry | 21 |
| Years at The Co-operative Investments | 16 |
Andrew has been managing the UK Income with Growth Trust since late 1999. During this time, he has been nominated for Income Manager of the Year (Investment Week 2006, Income Sector) and in 2005, achieved second place for Investment Performance in Citywire’s UK retail industry awards.
Andrew draws on the expertise of over 50 investment professionals at The Co-operative Asset Management, all based in Manchester, including:
- equities, fixed income and ESG (environmental, social and governance) research analysts dedicated to researching UK companies
- fund managers focused on stock selection and constructing diversified portfolios which balance performance with risk and volatility
- quantitative, operations and other experts supporting the investment process
- risk analysts, responsible for ensuring appropriate risk is taken within the portfolio.
Fund facts
| Manager name & location | Andrew Moffat, 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 30/06/10) |
92 |
| Fund size (as at 30/06/10) |
£357 million |
| Fund yield | 4.3% |
| Distribution frequency | Quarterly |
| Distribution dates | May, August, November, February |
| Lipper ID | 60009201 |
| Sedol code | 159805 |
| PTR (as at 30/06/10) | 58.66% |
| TER (as at 30/06/10) | 1.53% |
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:
[back to top] 
