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Mark Barnett: stronger markets don’t mean greater returns

Britain’s FTSE 100 has ticked up 7.5% so far this year but a stronger market may not equate with better company earnings, warns Mark Barnett, manager of the Perpetual Income & Growth investment trust.

Barnett says that although he is optimistic about the recent move up in markets, he remains concerned about the outlook for world economic growth and is sticking to defensive holdings. Six of the trust’s top ten holdings are in tobacco and pharma companies such as Imperial Tobacco (IMT.L), British American Tobacco (BAT.L) and GlaxoSmithKline (GSK.L).

Aside from the defensive core, one of the biggest contributors to the portfolio’s performance has been its non-life insurance holdings and Hiscox (HSX.L), Amlin (AML.L) and Beazley (BEZG.L) have all added to the trust’s returns over the past year.

Income & Growth also has small holdings in a number of other trusts such as Impax Environmental MarketsMacau Property Opportunities and Damille Investments. Barnett says he only invests in trusts that can offer something different, which he can’t access otherwise.

The trust has a yield of 3.7%, slightly lower than the UK Income Growth sector average of 4%, but the manager says he is looking to provide capital and real dividend growth to shareholders and looks to consistent superior dividend growth in order to do this.

Barnett has recently added cruise ship group Carnival (CCL.L) to the trust, following its dip in share price as it was hit by the Costa Concordia disaster in January. He has also built up a position in publishers Reed Elsevier (REL.L) since its change of management.

The trust has given net asset value (NAV) total returns of 18% over the past year and 55% over the past three years to outperform the FTSE All Share returns of 14% and 39% over the same periods. The share price has increased 17% in the past year and 64% over the past three years.

The trust is currently trading at 281p, a 2% premium to its share price of 275.4p.

Barnett also manages the Keystone investment trust, the Invesco Perpetual Select UK Equity trust and the Invesco Perpetual UK Strategic fund.  

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