
Dunedin Income Growth Investment Trust PLC 31
Strategic Report Governance Overview General Portfolio Other Information Financial Statements
performed very well and demonstrated the ability to grow
shareholder distributions at attractive rates of return.
Alongside the lack of exposure to banks, one other holding
that has proven more challenging within the Financials
sector has been Asian-focussed life assurer and asset
manager Prudential. A combination of regulatory changes
in a number of its end markets, weaker economic
performance and some internal missteps have seen its
rate of growth decline. It has also suffered from
association with large exposures to Hong Kong and China
where it has been treated as a proxy for those expressing
caution on those end markets. Prudential, however,
remains exposed to end markets with very low levels of
insurance penetration, large unmet need for personal
provision in the absence of state support, strong market
share positions and helpful demographic trends. While
timing is never certain, we do see substantial potential
upside for those prepared to be patient.
“Although it is disappointing that the
Company’s performance did not keep
pace with the strong market
performance, this outcome is
consistent with our defensive and
quality-focused investment strategy.”
The second element that held back performance during
the year was our stylistic focus on high-quality companies
and overweighting the mid-cap part of the market. This
was very much a year where companies with low starting
valuations were in vogue, materially outperforming those
with strong quality characteristics. The Company’s
overweight position to UK mid and small cap companies
detracted, with the FTSE 100 Index outperforming the mid
cap focused FTSE 250 Index by 5.2% over the year, with
domestically exposed companies particularly overlooked
in the second half of the year as concerns grew over the
state of UK economy and capital focussed on the larger
part of the market. We believe strongly that over, the long-
term, an emphasis on high quality companies will deliver
good returns for the Company with both greater
resilience and faster rates of earnings and dividend
growth. Likewise, we continue to see numerous
compelling opportunities to invest in UK mid cap
companies, where our research capabilities can give us
an edge in what are often overlooked corners of the
market - we consider that the portfolio has a number of
stocks with substantial potential upside.
Finally, there were a small number of companies that
detracted from performance in the year. Edenred, a
global services and payments business, faced several
headwinds, including regulatory changes in Italy, declining
Eurozone interest rates and slower revenue growth as
inflation benefits wane. However, despite this, Edenred
delivered solid results in 2024, has successfully navigated
similar regulatory pressures in other markets and
continues to deliver strong profit and dividend growth,
leveraging its valuable proposition and extensive portfolio
reach. Now trading at a very modest valuation, we expect
trading to steadily improve through the year and for the
company to rebuild confidence with investors. As was the
case to a degree last year, niche lender Close Brothers
continued to struggle in the face of regulatory pressures
on its car finance business and the potential costs of
compensation and remediation. We had maintained the
holding, looking for a potential recovery, but the prospects
of a rapid resolution to the regulatory overhang receded
and the negative impact on the underlying business
continued to develop, leading us to exit the holding in the
second half of the year. Not holding aerospace engineer
Rolls Royce also proved to be a drag as the company
delivered cash generation ahead of expectations driven
by a robust civil aerospace cycle and recovered from a
number of years of tough market conditions and self-
inflicted challenges. Our primary rationale for not holding
stems from a lack of dividend, with the company not
having paid a distribution since 2020.
While our focus is quite rightly on what has been
challenging during the year. It is important to emphasise
that the headwinds to performance primarily stemmed
from companies we didn’t own, during a year where the
market return of 17% was relatively high in a historic
context. Encouragingly, we saw a number of the holdings
deliver strong returns in the year. Notably Morgan Sindall
published consistently excellent results, as customers
looked to upgrade office space. This substantial profit
growth and strong market position led to a significant
increase in dividend payouts and consequently the share
price. Games Workshop, a leading hobbyist retailer,
demonstrated resilience in the face of cautious consumer
spending, which has challenged many consumer facing
businesses. The company's strategic partnership with
Amazon, finalised in December, will adapt the
Warhammer universe into films and television series,
promising profitable growth opportunities in the coming
years and, alongside the digitalisation of its brand, there
remains a long runway of future growth potential. It has