Dunedin Income Growth Investment Trust PLC

An update from our investment managers, Ben Ritchie and Louise Kernohan - 8 July 2020

The FTSE All Share rose again during June for the third straight month, building on the rebound seen since the last week of March.  This was driven by a continued recovery in global economic activity, despite the resurgence of Coronavirus cases in the United States. Markets also continued to take comfort from the support of both central bankers and governments to keep interest rates low and to deploy additional fiscal stimulus. In terms of sector and style leadership it was a mixed month but in general the more cyclical and value end of the market was in favour and we saw strong performance from financials and utilities which were particularly buoyed by the announcement of maintained dividends at a number of firms, while more defensive assets such as healthcare, pharmaceuticals and beverages lagged.

It was a relatively quiet month for portfolio activity. We added to an existing position in Euromoney which has seen its share price hit hard by the suspension to their events activities. The company has a strong digital platform, well respected management team and critically a very robust balance sheet which makes us believe that the current lowly valuation presents an opportunity for those prepared to be patient. We also increased holdings in Sirius Real Estate and National Grid following updates that reinforced our confidence in the dividend distribution prospects, while we also raised our stake in Hannover Re given an increasingly positive outlook for their end markets. We funded these by modestly reducing RELX which has been very solid through the crisis, and again reduced Unilever where the prospects still look relatively underwhelming at the current time. Once again elevated levels of volatility provided the chance to write a series of options at relatively high prices which generated some useful additional income for the portfolio.

The level to which the global economy recovers to and its ultimate growth trajectory remain uncertain. Across many markets there are signs of positive progress as the virus growth rate slows and economies re-open, while markets have so far looked through the worsening situation in the United States. This recovery has been reflected in markets to a reasonable degree with a strong rebound from the lows of March. However, there remain significant challenges ahead and we are still focussed on closely monitoring the financial strength of our holdings and remain wary of chasing yield at the expense of total return. As we commented in past months we are watchful for opportunities and have taken advantage of a few interesting investments but for the moment we remain quite happy to retain a relatively defensive tilt to our overall positioning.