Standard Life Equity Income Trust (SLET) follows an unconstrained approach to seeking above-average income with real capital and income growth potential. Manager Thomas Moore selects a portfolio of 50-70 UK stocks where dividend growth is backed by earnings growth, strong balance sheets and sensible valuations. Since taking on the fund in late 2011, Moore has changed SLET’s focus from a predominantly large-cap fund to a portfolio tilted to mid-sized and smaller companies, with exposure to AIM stocks as a further differentiating factor from most UK equity income peers. The trust has maintained or grown its dividend every year since launch and ranks second of 21 funds for risk-adjusted NAV total return performance over one and three years. SLET may use gearing of up to 15% and is currently c 11% geared.
Moore makes use of Standard Life Investments’ well-resourced UK equity team, ‘Focus on Change’ investment philosophy and quantitative stock matrix to build a fairly concentrated portfolio of 50-70 stocks with attractive yields and the potential for real growth in capital and income. Although SLET uses the FTSE All-Share index as a benchmark, its unconstrained mandate means that both portfolio weightings and performance are likely to differ markedly from the index; as well as being very underweight the largest companies, at 31 August the Trust had 14% of its portfolio outside the benchmark, principally in AIM stocks.
A sharp sell-off in late summer has seen the blue-chip FTSE 100 index falling by more than 16% from the all-time high achieved earlier this year. Market turmoil sparked by growth concerns in China, fears over the impact of interest rate normalisation in the UK and US, and broader geopolitical concerns are all weighing on investor sentiment. However, with the UK economy continuing to improve, domestically-focused stocks could prove more resilient in the near term.
At 30 September SLET’s shares were trading at a 1.1% premium to cum-income net asset value. Having touched a three-year widest discount of 10% as election jitters dented appetite for trusts with smaller company exposure, a sharp re-rating saw the shares reach a 4.2% premium in late August, a record level under Standard Life Investments’ management.