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Defensive tactics

I first wrote about the Bloxham global equity income fund in May and am returning to it because a global income mandate offers considerable diversification from a purely UK fund.

A fund invested in global leaders also makes a great deal of sense at this stage. In a recession, the strong get into an even stronger position as much of their competition falls by the wayside.

The Bloxham fund has a gross yield of 5.2 per cent but will seek to grow that over time.

Everyone needs cash for everyday needs but I do not believe that using only cash investments to supplement one’s pension is wise. For example, interest rates in 1990 were at 15 per cent and now they are 2 per cent. That is a huge fall in one’s income and inflation has been eroding the value of cash all that time.

Stockmarkets are volatile and cash deposits are guaranteed but inflation remains the biggest enemy of the cash investor.

Bloxham is an independent investment house based in Dublin, owned by its eight partners. This means they have a clear and direct incentive to make their funds a success and consequently grow the business.

Overseas income is what this firm does exclusively and it already has a successful track record, having run a similar fund (unavailable in the UK) for the last six years. Dividend growth on that portfolio has averaged around at 10 per cent a year.

Lead manager Pramit Ghose has 22 years’ experience and is not expecting quite such healthy dividend growth over the next two or three years, given the global downturn. However, he is forecasting dividend growth in the region of 4 per cent for 2009. Remember that UK interest rates are already down by more than 40 per cent this year.

Since I highlighted the fund in May, it has fallen by almost 21 per cent. That is clearly bad news for anyone who bought the fund at launch but considering that performance ranks it 21st out of 194 funds in its sector, it has actually done relatively well (yes, I do know you can’t eat relative performance, as they say). Remember that the last few months have been some of the worst for stockmarkets in memory.

Since early September, the fund has been averaging a cash position of over 15 per cent. This was held in sterling so, unfortunately, it did not benefit from the falling value of the pound.

Today, the fund has a bias towards defensive stocks, with top holdings including Johnson & Johnson, Total, HSBC, AT&T, Nestle and Roche. The fund has 15 per cent in the UK with about 33 per cent in Europe, 31 per cent in the US and 5 per cent in Asia. Many of the overseas stocks and even the bigger UK stocks should see a benefit as the falling pound helps increase dividends to sterling investors.

It is clear that Bloxham favours solid blue-chip companies with strong long-term track records. Such firms should come out of the global downturn stronger, seeing off their weaker competitors.

As I have said repeatedly in this column, investors who want a higher income will have to turn to corporate bonds and higher-yielding equities or put up with much lower returns from cash. The same is true whether the investor lives in the UK, Europe, Asia or the US.

Savers outnumber borrowers by a huge margin so the shift, if it eventually comes, can be significant. Investors may just have to bury their heads in the sand on the capital side over the short term – the bumpy ride is not over yet.

Those prepared to take a long-term view may wish to consider Bloxham global equity income.

Mark Dampier is head of research at Hargreaves Lansdown

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