Managers that use buy-and-hold strategies rarely make changes to their portfolios, but those running the £2.7bn Trojan Income fund have been more active than usual so far this year.
The FE fundinfo four-crown rated fund - run by FE fundinfo Alpha Manager Francis Brooke alongside Hugo Ure and Blake Hutchins – has added three stocks to its 39-strong portfolio so far this year, a relative spending spree compared to previous years.
Their latest purchase is FTSE 100 listed specialist motor insurance company Admiral Group, which has also been added to the £249m Troy Income & Growth Trust.
The managers said Admiral Group’s 21% share of the UK market was an attractive to own the shares, but said it has plenty of scope to grow in both the UK as well as in Europe, but it is also the income that has attracted them to the stock.
In the latest factsheet, the team wrote: “The business generates a market-leading return on equity and regularly produces more cash than it needs, resulting in a comfortably affordable ordinary dividend that is regularly supplemented by special payouts.”
Admiral Group paid 156.5 pence per share for the year 2020, giving investors a dividend yield of 5.39% based on its share price at 31 December 2020.
This is significantly higher than the Trojan Income fund’s current yield of 2.53%, and the Troy Income & Growth Trust’s yield of 2.81%.
The share price has also done well, up 15% year-to-date.
Performance of Admiral Group plc year-to-date
Source: FE Analytics
The managers added that Admiral Group is a “high-quality UK franchise” that has the opportunity to improve the fund’s dividend growth in the future.
It follows on from the previous purchase of FTSE 250 industrial business Diploma plc in spring this year. The Trojan Income fund managers said it was a “world-class” industrial business with a diverse customer base, when they initiated the position.
They liked that the company was “not overly capital intensive” and avoided “commoditised activities which lack pricing power”.
“We believe Diploma has an enormous opportunity for redeploying capital, capable of funding capital and income growth for years to come,” they said.
Diploma’s share price is up 37% year-to-date. The fund also bought Chicago Mercantile Exchange (CME) in March.
These changes come as Trojan Income’s lead manager Francis Brooke – who has managed the fund since its launch in 2004 - is set to step down to become vice-chairman of Troy Asset Management at the start of 2022. Co-manager Blake Hutchins will take his place as lead manager.
In 2021, the fund has underperformed the benchmark and its peers - but the managers said over the long term the fund should deliver competitive returns despite “occasional setbacks”.
Performance of the fund year-to-date
Source: FE Analytics
The managers also noted how many “high-quality” companies have now bounced back from what they described as “excessively depressed” valuations.
Among the fund’s largest holdings, pharmaceutical giants AstraZeneca (3.3%) and GlaxoSmithKline (3.3%) have performed well in recent months – up 21% and 18% from their lows earlier in the year.
Specialist chemicals company Croda (3.7%) and global information and analytics firm RELX (4.9%) were also strong performers over the last month.
Performance of the fund versus sector & benchmark over the past five years
Source: FE Analytics
Over the past five years, Trojan Income has delivered a total return of 18.3%, compared to 30.3% from the IA UK Equity Income average, putting it in the fourth quartile of the sector. It has an ongoing charges figure (OCF) of 1.01%.