Investment trust Dunedin Income Growth (LON:DIG) lagged its FTSE All-Share benchmark again in the half to July 2026. The UK equity income fund’s underweight position in banks and weaker stock selection in industrials and utilities dragged on returns.
In light of the trust’s continued underperformance versus the benchmark, the board has undertaken an in-depth review of the manager’s investment philosophy and process using an external consultant. And Howard Williams, chair, said the board continues to monitor the manager for ‘much needed signs of improvement’.
Focused on quality
Managed by Aberdeen’s Ben Ritchie and Rebecca Maclean, Dunedin Income Growth offers a differentiated, UK-centric strategy targeting rising income and capital growth aligned with a sustainable investing approach.
The managers invest in high-quality businesses with resilient earnings, strong cash generation and the financial capacity to invest and grow through a range of economic conditions.
Behind the benchmark
The trust delivered a positive net asset value (NAV) total return of 6.3% for H1 and a share price total return of 5.9%, reflecting a slight widening of the discount.
| AIC UK Equity Income Sector | 5-yr share price total return | Discount/Premium to NAV |
| Chelverton UK Dividend | -6.8% | -7.3% |
| Finsbury Growth & Income | -2% | -6.7% |
| Dunedin Income Growth | +23.6% | -7% |
| CT UK Capital & Income | +30% | -4.2% |
| Murray Income | +36.3% | -6.2% |
Source: The AIC, Morningstar
Unfortunately, these returns lagged the 7.8% total return delivered by the FTSE All-Share Index. On a relative basis, the portfolio benefitted from underweight positions in healthcare and consumer staples, alongside strong stock selection in technology.
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However, these positives were more than offset by an underweight position in banks and weaker stock picking in industrials and utilities.
Winners and losers
During H1, top stock contributors included Dunedin Income Growth’s largest holding, Totalenergies (EPA:TTE) as well as Edenred (EPA:EDEN), Softcat (LON:SCT) and Standard Chartered (LON:STAN). Top detractors included Telecom Plus (LON:TEP) and Taylor Wimpey (LON:TW), while a lack of exposure to HSBC (LON:HSBA) and Shell (LON:SHEL) also weighed.
Ritchie and Maclean added three new holdings to the portfolio, namely Coats (LON:COA), Rolls-Royce (LON:RR) and Rio Tinto (LON:RIO).
Attractive triple discount
Despite the trust’s recent underperformance, Ritchie and Maclean remain optimistic about the prospects for the portfolio. Indeed, they believe Dunedin Income Growth offers a compelling ‘triple discount’. What does this mean?
Well, firstly, the shares trade at a discount to NAV. Secondly, they argue the portfolio is ‘attractively valued relative to the wider market despite its stronger balance sheets, profitability and growth characteristics’.
And thirdly, they observe that UK equities remain ‘inexpensive relative to both their own history and international peers’.
There is a lot to like about Dunedin Income Growth, which aims to provide investors with a combination of reliable income and long-term capital appreciation. With its 15-year run of increased payouts, the trust is one the AIC’s ‘Next Generation Dividend Heroes’.
Unlike many UK Equity Income trusts, Dunedin Income Growth prioritises quality. This makes it a compelling complement to more value-driven strategies.
That being said, performance will need to improve if the 7% discount to NAV is to narrow. Since the H1 period-end, Dunedin Income Growth has entered into a three-year standstill agreement with Saba Capital.
While the US activist doesn’t currently hold a position in the trust’s shares, the deal benefits shareholders by providing near-term clarity in respect of Saba’s position. It also gives the board a bit of breathing space while they focus on pepping up the fund’s performance.
