Can you give a brief overview of your strategy in terms of what you are trying to achieve for investors, your investment process and the make-up of the investment team?
Our focus can be summarised in one word: ‘quality'. We look to deliver both a premium yield and long-term capital appreciation and believe investing in high quality, dividend paying companies is the best way to do this.
It's all too easy to fall into value traps by chasing optically attractive yields that turn out to be too good to be true. That's why we prefer companies with well covered dividends, strong balance sheets and good returns on equity. These quality characteristics should underpin consistent and growing capital returns to shareholders.
Consistency is key. We believe consistently delivering solid performance and avoiding blow ups delivers the best long-term outcomes for investors and this is illustrated by the Fund having been above the IA Global Equity Income sector median for the past 10 calendar years*.
The beauty of our process lies in its simplicity. Our easy-to-understand process consists of three stages: screening, fundamental analysis and portfolio construction. Screening narrows down the universe to the companies with the quality attributes we desire; fundamental analysis is where we add value through our detailed bottom-up research; and portfolio construction is where we bring this together in a well-diversified portfolio.
Consistency is also reflected in our team, with a highly experienced trio of named portfolio managers, each with over 25 years' industry experience, many of which have been spent working together on this strategy.
With consistency, simplicity and quality as our guiding lights, we have been delivering strong outcomes for investors for over a decade and we look forward with confidence to the future.
How are you currently positioning your portfolio?
We take a long-term view and our positioning does not typically change greatly from one quarter to the next. We also run a well-diversified portfolio, where every stock contributes to yield generation, but none dominates. That diversification is shown in the top 10 positions, which feature a varied list of names from the tech, industrials, financials and health care sectors.
Geographically, we are underweight the US (one of the lowest yielding developed markets) and are overweight Europe. We also have decent exposure to the Asia Pacific region, which offers one of the fastest rates of dividend growth globally.
At the sector level, our largest weightings are to the tech and financials sectors. The former offers fast dividend growth and has helped us keep pace with the rising market in recent years, whereas the latter is a reliable source of premium yields. That said, we have recently trimmed our semiconductor exposure, as valuations had ticked up and there were signs of increasing volatility in the sector. We redeployed the proceeds into lower beta names to ensure the portfolio maintained its defensive characteristics in choppy markets.
We believe our portfolio offers something different to the typical equity income fund.
Can you identify a couple of key investment opportunities for your fund you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level.
Given economic growth is low or slowing in most developed economies, our focus on quality is especially important at the moment. Companies can no longer use high inflation as an excuse to put through steep price rises and flatter their top lines, so those with healthy and defendable margins look best placed right now.
AI has been an inescapable theme for investors over the past 18 months and whilst NVIDIA's paltry yield means it's not suitable for us, there are numerous ways we can still play the theme. Whether that's through networking and infrastructure semiconductor giant Broadcom or through Eaton and Schneider Electric, which are leaders in power management and benefitting from the huge growth in data centres, dividend investors can still join the party.
A final opportunity to note is that we recently added Singapore Telecommunications (SingTel) to the portfolio. Unlike most equity income funds, we typically don't like telcos, but we think SingTel is an exception to the rule. With businesses across the Asia Pacific region, it is exposed to favourable demographics and with management focused on improving returns at its operating companies, we see the potential for a valuation re-rating alongside increased dividends and potential share buybacks.
