Investment trust bargain hunter: 8% dividend growth and widest discount in years

One of the four investment trust managed by Mark Barnett, the former protégé of Neil Woodford, is trading on its widest discount for several years.

Perpetual Income & Growth is currently offering a 5 per cent discount, markedly wider than its one-year average discount of 0.9 per cent. It is one of Money Observer's Rated Funds.

The trust, which has been managed by Barnett since its inception in 1996, has been a reliable performer over the years, in terms both of overall total returns and of growing its dividend.

Over the past decade it has generated annualised dividend growth of 7.9 per cent, which is more than three times the rate of inflation.


In a recent note Canaccord Genuity retained its 'buy' recommendation. Analyst Alan Brierley says the discount has widened in recent months on the back of the recent wider UK stock market falls.

Earlier this week the FTSE 100 index had slipped below the 6,000 point mark, losing 3 per cent over the past month, while Perpetual Income & Growth's share price declined 5 per cent.

Brierley notes this de-rating has pushed the discount to 'its widest level in several years'. Over the past five years the trust has consistently traded close to the sum of its parts - the net asset value.

'Mark Barnett has constructed an exceptional long-term performance record with annualised outperformance of the benchmark of 7 per cent since 2000, and this has helped establish him as one of the UK's leading investment managers,' says Brierley.

'For us, the key question is not whether his funds should feature within a diversified portfolio, but which one of his stable should be selected.

'Mark Barnett manages a broad range of investment companies, in addition to the £11.6 billion Invesco Perpetual High Income fund and £5.8 billion Invesco Perpetual Income fund.

'For the retail investor, we would expect the inherent competitive advantages of the closed-ended structure to underpin further outperformance of the open-ended funds.'

The other two investment trusts Barnett manages are Edinburgh and Keystone.

There is plenty of crossover between Perpetual Income & Growth and Edinburgh, with 84 per cent of the holdings the same. Edinburgh's discount is currently 1.3 per cent, slightly higher than its average one-year discount figure of 0.4 per cent.

Barnett predominately focuses on firms paying sustainable dividends. He currently favours tobacco companies, with Reynolds American, British American Tobacco and Imperial Brands the three biggest positions in both Perpetual Income & Growth and Edinburgh.

But he is cautious on the overall economy and warns that there could be further dividend casualties in 2016.


Each month Money Observer highlights a couple of investment trust bargains, both online and in our monthly magazine.

We will also occasionally draw attention to investment trusts that are 'too hot to handle' - those that are trading on big premiums.

Our ideas come from regular conversations with investment trust analysts, and we will try to provide a mixture of bargains, from 'hidden gem' trusts with less than £200 million in assets to the more established names that typically trade on a smaller discount or premium.


For the sake of simplicity, rather than using technical measures such as the 'Z score', in this column we will identify bargains by comparing current discounts with their 12-month averages.

Only those trusts with a wider discount than their average are considered. We will also look at the overall sector and the quality of the trust, and then take a view on whether the discount looks a good opportunity.

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