We have moved the M&G North American Dividend fund to our Recommended list.  The fund previously featured on our Positive Watch list.

The fund is managed by John Weavers, an established member of the M&G Income team, headed by Stuart Rhodes.   The fund was launched in April 2015, although the team has been managing a range of portfolios that are underpinned by a dividend growth philosophy since 2008.

In this fund, the manager aims to deliver attractive total returns through the growth of income and capital by investing in a relatively concentrated portfolio of North American companies.  In keeping with the Income team’s approach, the focus is upon dividend growth, rather than dividend yield in isolation.  The fund features ideas from across three categories of stocks: ”Quality” is the core of the fund and incorporates companies with strong market positions, stable cashflows and growth potential; “Assets” features cyclical companies that have good capital discipline and a strong asset base; and, “Rapid Growth” includes companies that are growing quickly and generating solid cashflows and a rising income stream.

The fund is distinguished from other US income funds, which tend to have a structural value bias.  This is because most higher yielding stocks tend to be found in the more traditional value sectors.  However, the manager’s focus upon dividend growth, as opposed to simply dividend yield, helps in the curation of a more balanced fund.  The fund is unlikely to participate fully to the upside when markets are richly priced, or when low quality stocks are leading the market.  With its balanced approach to income investing, the fund can be used as a mainstay US equity holding.

As a Positive Watch fund, we wanted to monitor the success of applying this distinctive approach to a US equity mandate.  We believe that the process has been deployed with discipline and focus, with the fund delivering a risk and return outcome that is appropriate in the context of its objectives and the prevailing market conditions.  Therefore, we are pleased to move the fund to our Recommended list.