In her monthly article for professional Paraplanner, Juliet Schooling Latter, research director, FundCalibre looks at funds which are approaching or have just passed their three-year anniversary. This month she examines the TB Evenlode Global Income.
The global economic picture is currently very messy and the pandemic’s impact on dividends has been immense. The latest Global Dividend Index from Janus Henderson suggests that dividends around the world could fall by between 15% and 35% on aggregate this year*, with the outlook for different countries varying quite considerably.
In ordinary times, a dividend cut is a sign of failure, but these are exceptional circumstances. And whereas some companies played to their audience and paid dividends when perhaps they shouldn’t have in the past few years, now management is having to go back to basics, shoring up their balance sheets and cash flows and starting to reallocate capital more sensibly. We think this is a good thing for future returns.
It’s a view shared by the team behind the TB Evenlode Global Income fund, who do not want to see companies maintaining dividends if it negatively impacts a business’s prospects over the long haul.
The fund was launched in November 2017 and is managed by Ben Peters and Chris Elliot. Over the intervening three years, it has markedly outperformed and is top decile in its peer group, returning 26.1%**, compared with a 6.1%** average for IA Global Equity Income sector.
The investment team take a long-term approach, focusing on quality, cash-generative businesses. The team defines quality companies as those with three characteristics: asset-light business models; high barriers to entry which can’t be disrupted easily; and their customers’ decision to buy their product or service should not be determined completely by price.
These strict criteria lead to an investable universe of around 100 global companies. The team then selects stocks for the portfolio based on valuation and dividend yield. They will also assess potential business risks.
The resulting portfolio is highly concentrated with 25 to 40 stocks. However, these holdings will usually have large diverse international revenue streams. The fund typically favours more defensive sectors – like consumer staples or healthcare – while tending to avoid cyclical firms.
The team believe the majority of the portfolio has been unaffected by the global pandemic, citing the size and resilience of the companies involved. However, there are exceptions where the team has employed their focus on the long term.
Ben cites CTS Eventim, Europe’s largest ticketing company for events, as one such example. With few events currently taking place, the business does face near-term challenges, but Ben says CTS has a strong balance sheet and lots of cash to see it through this period and will be in a strong, competitive position when its markets return to normal.
Another is Quest Diagnostics, which operates in the medical testing arena. Ben says it is a market leader in testing and outsourcing in the US. While it has seen some benefit from Covid testing, routine testing has taken a back seat. How testing recovers in the next 12 months is uncertain, but the team believe it’s a leading business and vital to this Covid pandemic.
There are also companies which are thriving. Examples of these include eBay – due to the rise in online shopping – and Intel, courtesy of the move towards remote working.
This fund has a clear investment philosophy and a process that has proven to be very successful with TB Evenlode Income, which Ben also co-manages. The managers are not afraid to be radically different from their benchmark, which we applaud, along with their long-term focus, which aids dividend growth. The fund has an historic yield of 2.5%^ and an ongoing charge of 0.85%^.
*Source: Janus Henderson Global Dividend Index May 2020
**Source: FE Analytics, total returns in sterling, 20 November 2017 to 2 July 2020
^Source: Evenlode Investments, 31 May 2020
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Juliet’s views are her own and do not constitute financial advice.
