As the cost of living crisis bites, the managers of Securities Trust Scotland (STS ) have doubled down on consumer staples with strong pricing power, with recent purchase Domino’s Pizza (DOM) bolstering big brands including British American Tobacco (BATS) and Pepsi.

The £243m global equity income investment trust, run by Troy Asset Management, outperformed weaker markets in the year to the end of March, returning 16.8% including dividends. That beat its MSCI AC World benchmark by almost 1%, off the back of strong returns from Paychex, Diageo (DGE) and British American Tobacco.

Top performers emerged from the ranks of the consumer staples and information technology (IT) sectors, which represent a combined 59% of the portfolio according to the latest April factsheet. So did the largest detractors, including drinks mixer company Fevertree (FEVR), which manager Jamie Harries jettisoned earlier in the year, and US consumer manufacturer Clorox.

‘Ironically the areas of less good performance were also concentrated in consumer staples and information technology showing the widening gyre of post-Covid economic fortunes even within sectors,’ he said.

In the first full year under Troy’s management since taking over in November 2020 –  remodelling the portfolio in line with Harries and co-manager Tomasz Boniek’s Trojan Global Income fund – the trust’s board declared a final dividend of 1.75p to be paid in July. That takes total dividends for the year to 5.88p for a yield of 2.6%, despite a 19% fall in investment revenue.

Harries’ recent buys include positions in office real estate investment trust (Reit), Boston Properties and Domino’s, funded by the sales of US telecoms company Verizon and Fevertree.

He held onto the largest detractor, consumer goods company Unilever (ULVR), which saw its share price continue to fall after a failed bid for the consumer arm of pharma group GlaxoSmithKline (GSK) in January.

Over the last month, the portfolio has returned -2.3%, beating its benchmark by more than 7%, with the shares returning -3.5% and now trading at a 1.2% discount to net asset value, according to Numis Securities.

‘Our performance for the year as a whole has been satisfactory and has been achieved despite a number of events buffeting the world economy and markets. Inflation has become a major concern for investors and the authorities which marks a major change in the investment backdrop, at least for now,’ Harries (pictured below) wrote.

Harries, at the trust as well as the £747m Global Income fund, continues to focus on assembling a portfolio of high-quality names with pricing power to tackle rising inflation.

Top contributors to portfolio returns last year were US payroll software provider Paychex, which returned 49.7% in the year to the end of March, and British drinks giant Diageo, which returned 32%.

Other top performers include Microsoft, returning 27.7%, and US human resources software company ADP, which returned 29.2%.

The largest detractor, Unilever, returned -11.6%, followed by branded consumer goods company, Reckitt Benckiser, which returned -7.6%.

Big bets on those lagging stocks have proved a recent headwind for funds across Troy, including colleague Blake Hutchins’ Trojan Income fund. 

Harries said he still considers Unilever an ‘attractive asset’ in the long term and noted that he will maintain the holding.

Financial services company Hargreaves Lansdown (HL) made a brief appearance in the portfolio before the team decided its valuation remained ‘full’ in the face of increased competition.