Dunedin Income hedges against market fall

24th Sep 2009 07:01

Dunedin Income Growth Investment Trust saw an improvement in fortunes at the half year stage, though performance lagged that of the market.Net asset value (NAV) per share in the six months to the end of July rose by 13.2%, versus a gain of 16.1% by the FTSE All-Share index.The company said the under-performance was largely due to ‘the lacklustre showing from many of the higher yielding components of the market.’The economic slowdown prompted many companies to cut or abandon dividend payments in order to conserve cash, and this, along with the investment trust’s lower level of gearing, plus lower returns on cash balances, resulted in a fall in the company's revenue return per share from 6.95p to 5.16p for the six months under review.Dunedin has maintained its own interim dividend, however, at 3.75p per share.Revenue per share for the full year is expected to be lower than last year but the board intends to maintain the full year dividend at 2008’s level, even if it requires drawing on the company's revenue reserves. The company did not engage in any share buy-back activity during the period as the discount between its share price and net asset value narrowed from 5.2% to 3.9%.Dunedin has opted not to renew its revolving credit facility and has instead taken out a £5m one-year loan. The current draw down, coupled with the 7 ?% debenture, took total gearing at 31 July 2009 to 13.8% with debt valued at market and 11.4% with debt valued at par.Markets have rallied strongly since March and the company has taken the precaution of hedging against a market correction. ‘In recognition of the rapid recovery in the market and the possibility of a near term correction, the portfolio protection which we have purchased is intended at least partially to offset any short term weakness. Nonetheless, the [Investment] Manager is confident that it can identify soundly financed, well managed businesses to add to the portfolio at prices sufficiently attractive to justify the current level of gearing,’ said chairman John Scott.