DIVI plc Russia risk divested early; low volatility and dividend income growth key focus

Diverse Income Trust plc (LON:DIVI) fund managers, Gervais Williams and Martin Turner, provide their latest Investment Insights at 31 January 2022. 

Meanwhile, the ongoing appreciation of the US Dollar versus Sterling continued to favour many of the share prices of the very largest UK-quoted companies, because they have a large percentage of international earnings. Alongside, some of the largest industry sectors in the FTSE 100 Index were also rising. Hence the share prices of HSBC, Shell, BP and British American Tobacco continued to rise in January and the FTSE 100 Index itself bucked the adverse market trend elsewhere.

The Diverse Income Trust invests in a multi-cap portfolio of UK-quoted companies. Given the weakness in AIM listed stocks, its NAV might have been expected to decline significantly during January. In fact, the NAV of the Trust was much more resilient than the general drawdown, declining 1.25% during the month.

Early in the New Year, we became apprehensive about the build-up of Russian troops on the Ukrainian border. We feared it could lead to UK-quoted Russian companies which are part of the FTSE 100 Index, such as PolyMetal International plc, becoming subject to international financial sanctions. One of the advantages of a multi-cap strategy is that each portfolio holding is relatively modest and can easily be replaced with others that carry equally attractive risk/reward ratios. Given the uncertainty, we sold holdings with substantial Russian or Ukrainian operations for precautionary reasons during January.

During January many investors recalibrated their assumptions on inflationary prospects, with the cost of government debt increasing. Many of the global stock markets were markedly weak, and UK AIM listed companies suffered a similar trend.

Over the longer term, the Trust’s success in generating good and growing dividend income has been at the cornerstone of its long-term returns. Over the ten to eleven years since the Trust listed in April 2011, it has delivered some of the strongest returns of its peer group. Alongside, with dividend income coming from so many different holdings, the amount the Trust’s share price moves (known as its volatility) compared to others in its sector is low.

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