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Premier Income Fund Update Q3/13 with Chris White, Manager, Premier Income Fund
Bookmarks:
0|Premier Income Fund update
72|Performance detractors
161|Emerging markets slowly
268|Stock specific risk
311|Equity income
366|High yield stocks
446|Dividend outlook
494|Fund position
Duration:
00:09:13
Recorded Date:
4 October 2013
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Transcript:
PRESENTER: For an update on the Premier Income Fund I’m joined now by Fund Manager, Chris White. Chris we’re about three-quarters of the way through 2013, how’s the portfolio doing?
CHRIS WHITE: We’ve been very pleased with the performance this year, both for the Premier Income Fund and the Monthly Income Fund are up around about 20% year-to-date and not only have we been achieving capital growth for our investors, but we’ve also had a very significant dividend yield which is currently around 4½% on both funds.
PRESENTER: What’s worked well for you?
CHRIS WHITE: In terms of sectors well we took a very bullish stance at the start of this year, we thought that Europe was going to start to see some sort of economic recovery so we had a good exposure towards sectors like media and life assurance which have both benefited very strongly from economic recovery during the course of the year, and in terms of individual stocks we’ve seen very good performance from the likes of Daily Mail, William Hill and Legal & General.
PRESENTER: And what’s detracted from performance?
CHRIS WHITE: I think if we’d had our time again at the start of this year we would have probably been slightly more fully weighted in industrials. It’s an area of the market that has outperformed as we’ve gone through the year and we’ve been underweight in that area so I think that would have been perhaps that’s one sort of regret. And also consumer staples have performed very well during the first half of the year and that caused us some pain because we’d been underweight in these expensive defensives like Unilever and Reckitt Benckiser; however, over the last month or two those shares have seen some weakness and they’ve seen some profit downgrades and so that sort of lack of exposure is actually moving our way now.
PRESENTER: How strong is the UK economic recovery?
CHRIS WHITE: The UK economic recovery I think is very well embedded. We are seeing significant growth in many areas, whether it be services, manufacturing or the housing market. So I have a high degree of confidence that the economic recovery will continue. And I think when you take a step back and think about business people who are looking to make decisions, you know they’ve had to put decisions on ice for the last sort of three to four years because of the credit crisis, now all these decisions I think will start to come to fruition so I think we’ll see a substantial increase in capex and also a reduction in unemployment as people take on more staff to execute these plans.
PRESENTER: The UK economy is picking up but emerging markets are slowing. How is that affecting what you’re doing on the portfolio?
CHRIS WHITE: We’re taking the opportunity to add to emerging markets exposed stocks so one of our more recent purchases has been HSBC. You know we think that investors want to be in emerging markets and Asia, Latin America on a five-year view, but just in the short term I think certain parts of emerging markets, those countries which have significant trade deficits or budget deficits will be under pressure. But I think it’s providing a decent opportunity to buy quality companies such as Aberdeen Asset Management or HSBC.
PRESENTER: You mentioned the Premier Income Fund’s yielding about 4½%, is that too high?
CHRIS WHITE: It is a high yield compared to the sector. We’re one of the higher yielding funds in the sector and we’re very happy with that because it means we’re a genuine equity income fund. I think there are many funds in the sector that are really masquerading as income and growth funds so I’m quite happy to pay a yield premium. I don’t think there’s any pressure on that dividend at the moment. I’m still finding opportunities around which in companies that yield between 4 and 5% so I feel we are operating a proper genuine equity income fund. And actually I think that’s important because the disciplines of equity income investment are very important, and we like to buy stocks when prices are low and the dividend yields are high and sell them when the shares have risen and the P/E ratios look high and the dividend yields are lower and that equity income rotation of buying low and selling high is a very good investment discipline which adds returns over a long period.
PRESENTER: How subject to stock specific risk is that yield?
CHRIS WHITE: We have got a pretty well diversified portfolio. We have around about 40, just over 40 stocks in the portfolio at the moment. The largest holding would be around about 6% of the fund. I like having a fairly condensed list of stocks. I think 40 is perfectly adequate for diversification and in my experience as a fund manager over many years, the problems quite often happen in the tail of your portfolio. So when you’re holding 70 or 80 stocks then you tend to get problems in your tail, whereas when you’re holding 40 stocks, it really focuses the mind on whether you really like these companies or not.
PRESENTER: Are you not concerned that this constant demand for equity income is becoming a little bubble-like?
CHRIS WHITE: I think while interest rates remain low I think there is going to be continued demand for equity income shares. I don’t feel we’re in particularly an equity income bubble. It’s not really something I recognise when I look at the stock market and the valuations of the sort of companies I’m investing in. I think certain parts of the market are expensive but I wouldn’t say equity income as a space was an expensive area of the market. And if you believe Mark Carney, the current Head of the Bank of England, he says that interest rates are going to remain low for a considerable period, as long as three years. So I think that if that’s the case and interest rates remain around about ½% for the next three years then equities are going to provide good support.
PRESENTER: Is it easy to find stocks with a high and a sustainable yield?
CHRIS WHITE: Absolutely, I mean two stocks we’ve been buying recently are HSBC which has a 5% dividend yield. We think that HSBC is pretty well placed to grow over the next two to three years. It’s undergoing a big restructuring programme under their new Chief Executive, Stuart Gulliver. They’ve got strong exposure to fast growing areas of the world like Asia and emerging markets. So you’ve got a 5% dividend yield and a pretty low valuation and a company that is improving its returns through restructuring. So that’s one company we think is very attractive at the moment.
Another stock we’ve been buying recently is British Aerospace, or BAE Systems, where you’ve got a company which is trading at just over ten times P/E so it’s very cheap relative to its peers in the international defence industry, has a dividend yield of 4.8% and it’s benefiting from the internationalisation of its business. It has significant interests in the US and the UK but increasingly it’s moving into areas like Saudi, UAE, Oman and Australia which is providing another leg of growth at good margins. So I still think there are plenty of opportunities around.
PRESENTER: What’s the dividend outlook for UK PLC for 2014?
CHRIS WHITE: Well we’ve alluded to the economic recovery which feels firmly embedded. I think if companies are doing better and making more profits and increasing their cash flows then the outlook for dividend growth looks pretty strong. Over the past 12 months we’ve seen dividend growth of around about 6½% in the UK market and I’d expect the rate of dividend growth to continue to be around about that level.
PRESENTER: You’re not worried by the odd company beginning to turn up with profits warnings are you?
CHRIS WHITE: Inevitably there will always be companies that have profits warnings. Today we’ve seen one from Carpetright and it took the market a little bit by surprise but I think in the round when you look at the market as whole I think a lot of companies are going to find that they’re doing quite well over the next 12 months.
PRESENTER: So how are the funds positioned today for the months ahead?
CHRIS WHITE: I think you have to be a little bit cautious. I think you’ve got the economy which looks well placed to recover but the stock market has anticipated that in certain areas and parts of the stock market look expensive so we’re trying to stay away from those areas which look expensive, perhaps like industrials or real estate or retail, and look for areas of the market where we feel we can really add value. So we think it’s a little bit of a stock picking market at the moment, but there are plenty of areas where we can find good companies at good valuations with good dividend yields.
PRESENTER: Chris White, thank you very much.
CHRIS WHITE: Thank you.
This webcast is directed only at authorised financial advisers and professional investors. It is not intended for retail clients.
This webcast expresses opinions and provides information on underlying research and analysis, which may have been acted upon by Premier or its associates for their own purposes. This webcast is for information purposes only and does not constitute advice. Reference to any particular stock does not constitute a recommendation to buy or sell the stock. Particular stock holdings may vary due to prevailing market conditions. Holdings information is available on the monthly factsheets which are available on Premier's website www.premierfunds.co.uk. All references to past performance are no indication of future returns.
A free, English language copy of the Fund’s full prospectus, Key Investor Information Document and Supplementary Information Document are available on the Premier website or by calling us on 01483 306090. For your protection, calls may be monitored and recorded for training and quality assurance purposes.
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