A US equity income strategy with a strong heritage, managed by experienced practitioners. Alongside the search for companies with high current incomes and solid dividend growth is an unwavering focus upon valuation. The fund features in our ‘Larger-Cap, Value - Dividend Strategy’ category.
The fund’s KIID Synthetic Risk and Reward Indicator (SRRI) is 5. This is a regulatory measurement that is, where possible, calculated from the volatility of its weekly performance over a five-year period. A score of 5 means the fund’s historic volatility is between 10% and 15%.
As a function of the investment strategy, the fund’s absolute volatility profile is lower than most funds in the sector, as well as the index. Due to the managers’ unwavering focus upon dividends and valuation, the fund’s risk/return outcome can be variable in an absolute and relative sense and it is highly correlated to value as a style. Different share classes could have different SRRI scores.
The fund is managed by a team of three dedicated fund managers, who are supported by a sizeable and experienced research team. John Bailer is the lead portfolio manager, with colleagues Brian Ferguson and Keith Howell working closely with him on the strategy. Within the group, they are part of Newton Investment Management, a wholly owned subsidiary of The Bank of New York Mellon Corporation, and they are based in Boston.
The managers believe that superior returns can be achieved by focusing on companies that have a shareholder-friendly capital return policy and seek to increase free cashflow through time. They favour companies that have high current incomes, solid dividend growth and are on undemanding valuation multiples. The managers aim to think on a global basis and try to identify the key themes that drive change.
The fund features 30-60 holdings, and the maximum absolute stock position is 7%. Sector-wise, the fund has great latitude and is permitted to hold between 0% and 35%. From a dividend yield perspective, the aim is to generate an income that is at least 50% higher than the benchmark over the long run. Regular risk oversight meetings take place with a view to minimising unintended exposures and ensuring that performance is driven primarily by stock selection.
Using a bottom-up, fundamental research approach, the team seeks out companies that possess the characteristics of a high and sustainable current income, together with dividend growth. Valuation analysis is at the heart of their work and, to generate ideas, the team uses quantitative and qualitative screening tools to narrow down the broad stock universe and help them focus their efforts. Ideas are also captured through themes, whereby identified long-term investment trends are used to highlight stock opportunities.
Fundamental analysis is undertaken on the narrower list of names, with team members using their individual sector expertise and working closely with colleagues in the Global Research team, as well as drawing upon third-party information. For stocks of interest, the investment thesis is built around three main factors: valuation, fundamentals and business improvement. On valuation, the team uses traditional methods of value to screen for relatively inexpensive stocks. On the fundamental side, they analyse company financials and seek out good management teams, a supportive competitive backdrop and an ability and willingness to pay dividends. Finally, on business improvement, the team believes that dividend growth is an important lead indicator of the sustainability and growth of a company’s free cash flow and overall business momentum. Companies that have compelling catalysts, or are the subject of investor scepticism, are of particular interest.
Price targets are monitored continuously, with analysts building base, bull and bear cases, together with risk/reward assessments. This work assists the lead portfolio manager as the final decision maker in respect of the stocks that feature in the portfolio, the desired position sizes and the role a stock plays within the overall portfolio structure.
Formal documentation, including the fund prospectus and the KIID, should be sought directly from the asset manager. For ease of reference, a link to the ASSET MANAGER WEBSITE can be found above.
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