Troy Trojan Income - a trot rather than a gallop
Richard Troue | Thu 12 April 2018
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- 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.