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Troy Trojan Income - a trot rather than a gallop

Richard Troue | Thu 12 April 2018

Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.
  • The fund has seen some lacklustre performance, but we believe the managers will do well over the long term
  • There are investments in some companies with superb records of dividend growth
  • The yield is currently 4.3% - variable and not an indication of future income

Our View

The beauty of investment is that there are many different ways to make money. The downside is you can spend a lot of time being a busy fool, drowning in information.

This is why we like fund managers with a clear approach they stick to through thick and thin. Francis Brooke and his team fit the bill in this respect. They invest in a small selection of businesses with sustainable franchises proven to endure.

Like any companies these businesses come in and out of favour. But their resilience in tougher times, plus solid growth when the outlook is better, can result in excellent long-term returns. The concentrated nature of the fund can add risk though.

It’s an approach that’s worked well since the fund launched in September 2004 and we’re happy to retain it on the Wealth 150.

Performance review

To approach the marathon that is long-term investment by targeting stable and resilient businesses is akin to the tactics of the tortoise in the well-known fable. Performance will sometimes look dull when other companies are racing ahead and this is what has happened over the past couple of years.

Sectors such as mining, technology and construction have done well and the team almost entirely avoids these areas. Their fortunes ebb and flow with the economy, and they tend to require large sums of money to run the business on an ongoing basis and produce their goods and services.

It’s perfectly possible for these companies to be good investments, but their cyclicality and capital intensity means profits and dividends are less predictable, so the team prefers to avoid them.

This means the fund has not kept pace with the growth of the stock market over the past couple of years, but the slow and steady approach has worked over the long term. Performance is ahead of the stock market since launch and the fund has experienced less severe ups and downs on the whole. Please note, this is not a guide to how the fund will perform in future.

Trojan Income - performance since launch

Past performance is not a guide to the future. Source: Lipper IM to 31/03/2018

Annual percentage growth
Mar 2013 -
Mar 2014
Mar 2014 -
Mar 2015
Mar 2015 -
Mar 2016
Mar 2016 -
Mar 2017
Mar 2017 -
Mar 2018
Troy Trojan Income 10.9% 12.0% 7.5% 12.6% -4.7%
FTSE All-Share 8.8% 6.6% -3.9% 22.0% 1.2%
IA UK Equity Income 13.4% 7.8% -1.3% 14.9% 0.3%

Past performance is not a guide to the future. Source: Lipper IM to 31/03/2018

Current positioning

At its core the fund has a number of investments in companies with long and successful track records of growing sales, profits and dividends. The table below shows a selection of companies in the fund, their average annual dividend growth over the past 10 years, and how many times they’ve had to cut dividends in this time. Please note there are no guarantees this performance will be repeated.

Company (alphabetical) 10yr avg. dividend growth Dividend cuts in past 10 years
British American Tobacco 10% 0
Burberry 17% 0
Coca-Cola 8% 0
Compass Group 12% 0
Nestle 7% 0
Next 13% 0
Reckitt Benckiser 14% 0
RELX Group 8% 0
Sage 17% 0
Unilever 10% 0
WHSmith 15% 0

Source: Troy Asset Management, September 2017.

The team recently added to their investment in Reckitt Benckiser. While it has been through a period of weaker performance, they believe its world-class brands, including Dettol, Nurofen, and Scholl, mean it is well-placed to deliver long-term growth in profits and dividends.

They also recently added a new investment in Domino’s Pizza, the world’s leading pizza delivery franchise. Even after many years of success the managers still believe there is growth potential in the UK, and in overseas markets where the company is less established.

Dividends

The team aims to offer an income that grows in real terms (ahead of inflation) in the long run. So far they have managed this and the dividend has grown each year since launch.

The fund currently yields 4.3%. This is variable and not an indication of future income. The team doesn’t target a specific yield or level of income, and they don’t guarantee to grow it each and every year.

They are confident they can grow it in the long run though, by holding a mix of high-yield companies, such as BP and Royal Dutch Shell, along with those offering greater dividend growth potential, such as Lloyds Banking Group and Unilever.

The fund’s charges can be taken from capital. This boosts the income, but reduces capital growth. The managers also have the flexibility to use derivatives, which increases risk.

Please read the Key Features/ Key Investor Information in addition to the information above.

Find out more about this fund including how to invest

Important information - Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice. No news or research item is a personal recommendation to deal.


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