Fund Overview
This Fund seeks to achieve a high level of current income and, as a secondary objective, steady growth of capital. Under normal circumstances, the Fund invests primarily in a portfolio of income-producing equity securities, such as common and preferred dividend-paying stocks. The Fund primarily seeks to identify companies with attractive long-term business prospects that generate cash and produce attractive levels of dividend income, and which are undervalued relative to other similar investments. The Fund may also seek to enhance the level of income it receives by engaging in a dividend capture strategy. The Fund is managed by Job Curtis and Alex Crooke.
Quarterly Commentary
The past quarter has been difficult for equity markets around the world as the probability of global recessionincreased in investors' minds in many geographies and sectors. While financial institutions continued to struggle with write-downs and liquidity, sentiment on mining and oil and gas sectors deteriorated sharply as the oil price and other commodity prices fell significantly from their peak levels on evidence of falling demand.
Recently, concerted action has been taken by Central Banks and politicians in the US and Europe to address weaknesses in the financial system. With global growth slowing there is an increasing probability that inflation will fall, and that interest rates, too, may fall.
Performance
Over the quarter, the Fund (A shares at NAV) marginally outperformed the benchmark, the MSCI World Index. For some time now the Fund has been overweight companies that in our opinion were cash-generating, appropriately leveraged and that have demonstrated resilient revenue streams. For example, the Fund has been overweight Telecommunications and Utilities, and the Fund was not been adversely surprised on dividends or earnings (for example: earnings downgrades and/or lower dividends) by the majority of the holdings in these sectors.
The most positive contributors to performance included UK food manufacturer, Dairy Crest, US packaging company Bemis and US energy utility Progress Energy. The Fund's underweight positions in mining, oil and gas, and banks also contributed to performance. The most negative performers included mobile giant Vodafone, and integrated oil companies Total and ENI.
Investment activity
During this period the Fund reduced exposure to European companies that have paid their semi-annual dividends and increased holdings in US companies, whose projected income over the next few quarters may enable the Fund to pay investors dividends in a quiet period for income in the rest of the world.
The Fund sold positions in Bayer, RWE and Statoil, and added positions in AT&T, Dow Chemical and Pitney Bowes, to name a few.
Outlook
The high level of volatility in markets has made it difficult to determine whether share price movements are justified by fundamental changes in their operations or are a product of technical issues (for example: forced deleveraging, sentiment changes, lack of liquidity). We believe, that while some business models, particularly in the financial sector, may not survive, the majority of companies and industries may still be around after the current crisis is played out. To this end we have continued to focus on companies with strong balance sheets, cash generation and sustainable dividend income.