Fund Review | 26th October 2020

The Trojan Income fund is widely held within our portfolios that we run on behalf of your clients. The managers of this fund seek to invest in quality businesses that have strong franchises, natural competitive advantages and that are committed to growing their dividends over time. Companies such as these tend to be particularly resilient in the kind of difficult trading environments that we have experienced 2020. The team’s preference for these businesses means that certain sectors, especially in the more cyclical areas of the market such as mining and housebuilders, will be lowly represented or excluded entirely from the portfolio. In contrast, the fund will be invested in traditionally more resilient sectors such as pharmaceuticals and consumer goods. Unilever with its conglomerate of brands would be a typical large holding and remains a healthy overweight in the fund, despite growing to be one of the largest firms in the UK market.

At least 80% of the companies in the portfolio must be listed in the UK, however they will often generate a large portion of their revenues from outside the UK. This provides a natural hedge to any further sterling weakness, be it either coronavirus or Brexit-induced.

The performance of the fund over both the long and short-term has been very good with outperformance consistently driven by the managers’ bias towards high quality businesses. The fund’s income growth has also been very impressive over its history. However, it will disappoint this year due to the dividend cuts brought about by the coronavirus pandemic.

During our call with the managers earlier this month we heard that they have been using the recent volatility to accelerate a transition within the portfolio to areas more positively exposed to structural shifts. They have purchased stocks such as London Metric, an e-commerce warehouse business, and Hargreaves Lansdown, the savings and investments platform. These positions have been funded by reducing areas the managers perceive as being structurally challenged such as banks and commercial office space.

To summarise, the fund has a clear investment philosophy and sound investment process offering exposure to UK equities through a more sheltered return profile. We remain very positive on this AA-rated strategy which has been in our Academy of Funds for many years.

Paul Angell, Investment Research Analyst

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