Dunedin Income Growth (DIG ) has increased gearing for the first time in four years after Abrdn fund managers Ben Ritchie and Rebecca Maclean found more quality growth stocks trading at good prices in a volatile but recovering UK market.

Drawing down £6m of borrowing to lift gearing to 9.5% from 6.8%, and using the proceeds from the partial sale of private assets group Intermediate Capital (ICG) after a strong period of performance, the managers added several new names to their UK equity income portfolio in the half year to 30 July.

Notable among these was the plastic-piping group Genuit (GEN), formerly Polypipe. Although a cyclical stock that the managers would not normally buy, they said its focus on sustainability offered structural growth and improved margins.

Convatec (CTEC), a wound care and continence care specialist, was introduced on the basis of its ‘favourable demographic trends’, including an ageing population and an increasing incidence of chronic conditions.

Holdings in Assura (AGR), the GP landlord, and IT infrastructure group Softcat (SCT) were added to for their ‘attractive total return prospects’, while the managers also topped up positions in animal genetics company Genus (GNS) and National Grid (NG) during its rights issue.

An interim report showed that the £401m investment trust fell short of its benchmark, however, with net asset value (NAV) with dividends included providing an 8.2% total return in the six-month period, lagging the FTSE All-Share which generated 12.3%.

Other good performances from construction and regeneration company Morgan Sindall (MGNS), which benefited from growth in its ‘fit-out division’ as clients upgraded their office spaces; and Unilever (ULVR), which started to benefit from the turnaround strategy of new chief executive Hein Schumacher, were offset by falls elsewhere.

The trust can hold up to a fifth of its assets in stocks outside the UK and saw its holding in French digital services and payments company Edenred hit by political uncertainty around the snap election and a regulatory investigation into contract tendering processes in its Italian business.

Drinks giant Diageo (DGE) also underperformed as consumer demand waned in Latin America and the Caribbean, compounded by a prolonged destocking cycle in the US.

‘We believe the downgrade cycle is coming closer to an end, while the underlying valuation remains attractive, presenting an opportunity to continue to back a high-quality business going through a challenging cyclical period,’ the managers said.

The duo continued to generate income from writing stock options such as on consumer health company Haleon (HLN), which the managers are looking to add to the portfolio.

Helped by this and a reduction in the number of shares through buybacks, revenues per share rose 8.1% to 8.92p, more than enough to cover two quarterly dividends of 3.1p.

Underlying income from the portfolio was broadly flat but the managers said they had seen several strong dividend declarations that boded well for the second half and for an increase in the final dividend.

The company paid 13.75p per share last year, putting the shares on a 4.6% yield at the end of July which was around 20% higher than the FTSE All Share.

Share buybacks are a response to the discount on the shares which currently trade 12% below NAV, taking the shine off the portfolio’s performance. While the managers have grown NAV by 38% over five years, narrowly ahead of the All-Share’s 36%, the shares have slightly underperformed, delivering 34%.