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Mark Dampier: A class above

Ecclesiastical Higher Income fund manager Robin Hepworth could teach some of his peers a thing or two.

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Fund management is awash with star names but a closer look reveals unsung heroes deserved of the same recognition. Robin Hepworth of Ecclesiastical Investment Management is a prime example.

Hepworth joined Ecclesiastical over 26 years ago and has been lead manager of the Higher Income fund since its launch in 1994. In a recent meeting with him I felt his presentation would be a good lesson to younger – and even some older – fund managers. He explained his investment approach and philosophy succinctly, without unnecessary jargon. I find those who are articulate in explaining what they do in the first few minutes of a meeting often make the best managers.

As a multi-asset portfolio, the Higher Income fund typically holds around 70 per cent in shares and 30 per cent in bonds and cash. The manager is, however, prepared to be flexible with this positioning. For example, leading up to the 2008 crisis, the bond and cash weighting was increased significantly to almost 70 per cent, which provided some shelter against the worst of the stock market falls. Presently, Hepworth expects to maintain a higher weighting in shares, especially as he currently finds greater value in stock markets than he does in bonds. It should also be noted that following a change of sector, the fund can now hold a maximum of 60 per cent in bonds and cash.

Hepworth is a truly active manager and purchases stocks with conviction. This means portfolio turnover tends to be very low. The fund provides broad diversification at a stock and bond level and, at present, comprises around 130 holdings.

The manager employs a value-based approach, favouring companies trading on attractive valuations with strong balance sheets. In terms of shares, he has a preference for those paying good dividends. This approach naturally leads him to focus on out-of-favour companies whose share prices have fallen but which he expects will recuperate against the expectations of other investors.                                                                                                        

The equity portion is biased towards UK companies, though the fund also offers geographic diversification. He believes Asia is a bright spot. The region continues to generate far greater growth relative to the West, while its dividend culture continues to mature. The manager is one of the few I have met more recently who is not entirely negative in his outlook for China. The country’s shares look exceptionally good value compared with the broader global market and while economic growth in China is slowing it should be more sustainable over the long term.

Hepworth’s contrarian thinking has also led him to increase the fund’s exposure to unloved areas such as Europe. He currently favours exporters, which could benefit from both the lower oil price and the weakening euro.

Unusually for a globally-focused fund, exposure to the US is limited. According to Hepworth, companies in the US will begin increasing capital expenditure at some stage, which will inevitably reduce short-term profits. Furthermore, after a good run for its stock markets, many companies appear overpriced.

Within the fixed interest element, Hepworth holds a relatively high proportion of preference shares, setting the fund apart from many of its peers. Around 9 per cent is allocated here, with many of these positions yielding around 6 per cent. He also invests in a number of Permanent Interest Bearing Shares issued by building societies including Nationwide and Coventry.

In conclusion, this fund offers exposure to a highly experienced manager who has the confidence to take a genuinely contrarian and active approach. These qualities are proclaimed by many managers but, in practice, can be hard to fulfil.

In my view the fund could provide the core to almost any portfolio. It currently yields 4.2 per cent, making it one of the highest yielding in its sector.

Mark Dampier is head of research at Hargreaves Lansdown

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