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Dunedin Income Growth Investment Trust PLC

 

Objective

The objective of Dunedin Income Growth Investment Trust PLC is to achieve growth of income and capital from a portfolio invested predominantly in companies listed or quoted in the United Kingdom.

Manager's Monthly Report

July 2010


June was another weak month for equity markets with the FTSE All-Share Index declining 4.6% on a total return basis. It is worth pointing out that this headline number is disproportionately affected by the 36% fall in the BP share price. Euro area debt concerns persisted, as investors remained unconvinced that the policy response would address public finances without acting as a brake on currently fragile economic growth. Measures taken by China to moderate its property market served as a further drag on risk appetite. In addition, generally disappointing economic data in the US reinforced growing worries regarding the sustainability of the global recovery. In the UK, the new Coalition Government announced its emergency budget which aims to reduce net debt from 11% of GDP to 1.1% in 2015 largely through spending cuts. Interest rates were yet again kept flat by the Bank of England, although the fact that one committee member voted in favour of a 25bps rise points to mounting inflationary concerns of prolonged monetary stimulus. Economic indicators were mixed. Both the manufacturing and services PMI were encouraging, whilst industrial production disappointed and the labour market remains weak. Elsewhere, in the US Q1 2010 GDP figures were revised downwards to 2.7% from an initial 3.2% reading, May payroll figures were worse than expected and new home sales fell 33%. The main news coming out of the Euro area was that Spain would conduct banking stress tests to address funding concerns while the ratings agency Moody’s downgraded Greece by four notches to Ba1, signalling a lack of confidence in the EU/IMF bailout package. Amidst a volatile market backdrop we took opportunities to add to holdings in Davis Service, Close Brothers and Chaucer, all of which offer strong business models and attractive dividend paying capacity. We topped up McBride following share price weakness and took profits in Weir on strength. Positions in both Chloride and Arriva were exited following recommended bid approaches. We wrote short dated calls against Prudential, AstraZeneca and Rio Tinto; whilst writing puts against Persimmon and Tesco. As stock pickers investing in companies rather than economies we have, on the whole, been encouraged by current trading and the steps companies have taken to manage themselves more efficiently. We believe that equity valuations are far from demanding though conditions ahead are likely to be tough. We will continue to monitor our investments carefully and make sure that the businesses we back can prosper with good quality business models, have attractive geographic exposures and have the balance sheet to withstand future volatile events. Post BP, we will continue to focus on maximising the dividend paying capability of the investment portfolio.


Source: Monthly Factsheet Aberdeen Asset Managers Limited