When Dan Roberts joined Fidelity in November 2011 he was immediately tasked with the development of the Global Dividend Fund, which was launched at the end of January 2012. Having established a strong track record over a 10-year career in investment management, he was seen to be the ideal candidate for a portfolio focused on global income opportunities, with a conservative attitude to risk. Two years on and he now also manages the newly launched Global Enhanced Income Fund, which uses covered call options on the same portfolio of stocks as the Global Dividend Fund to improve the dividend payment and further dampen volatility.
“I would describe the strategy as a dividend-based total return approach. The dividend is at the heart of what we do. We recognise it is an integral component of the total return from the equity market,” Mr Roberts says. “Importantly, we are looking to grow that dividend over time, hopefully ahead of inflation. We are not willing to compromise on the quality of the underlying dividend that underpins that yield. We will not restrict ourselves to the highest yielding stocks in the market. We will look across the market and look to strike the right balance of attractive headline yield, but also an income stream that can grow over time.
“The other feature that characterises the Fund is the strong focus on risk management. When I think about risk I think about the potential for capital loss, which is aligned with how my investors view it. That comes through in the performance and, if you look at drawdown during difficult market conditions, it is much lower than for the wider market and for our peers.”
Mr Roberts believes there are clear benefits to opting for a global income fund and encourages investors to look beyond the UK equity income vehicles that have long been a popular option for those seeking income outside of the fixed income space. First, he states that by opting for a UK-orientated or any other regional income fund you automatically expose yourselves to the vagaries of that market. For the UK, this means a relatively condensed pool of potential holdings, with some individual stocks making up around 10 per cent of the total market yield. By “going global” investors automatically get past that, achieving better levels of diversification. Second, it opens up a greater number of opportunities at a stock level, providing access to companies that investors cannot access from the UK, such as some of the large global IT companies based in the US and Asia.
“In terms of what I am looking for from individual stocks, first and foremost I want them to have an attractive valuation,” Mr Roberts continues. “I consider myself to be a value manager and I think that has come through in both this and previous funds I have managed. Having said that, it is not simply about buying the lowest p/e or the highest yield. When I am thinking of valuations, I am thinking of cross-cycle valuations, so rather than just looking at what the company is forecast to report over the next 12 months or what it has just reported over the last 12 months, I am thinking much longer term than that.
“The types of companies I am looking for are those that have simple and easily understandable business models, transparent financial statements, are run by management that are good allocators of capital and that have strong balance sheets – not just in the debt position but in off balance sheet liabilities, such as pensions liabilities. By investing in this type of company it helps me to manage the potential downside risk within the fund.”
The portfolio construction process is centred on the manager taking an unconstrained approach, starting with a blank sheet of paper rather than with index weightings in mind. With a potential universe of more than 2500 stocks, the final portfolio of around 50 stocks is relatively concentrated.
“Working for Fidelity, with its size and scale, gives me a genuine competitive advantage and not many, if any, investment houses can boast the same resources. It makes what I do on a daily basis much more expeditious. I control the ideas generation process, but then the analysts provide the value-add around the company specifics and industry dynamics, which together can get me to a conclusion on the stock in question,” Mr Roberts says. For example, with a stock like Astellas Pharmaceutical, which is a Japanese company, I can pick up the phone to one of our analysts in Tokyo who will have had lots of meetings with the company, in their own language and also has a good feel for the local investment market and the company’s place within it. I can tap into that resource very quickly and easily.”
“An advantage of running a global fund is if there is a sector that looks particularly attractive I am able to diversify across a range of stocks from different countries,” he adds. “For example, there are currently lots of opportunities in the pharmaceuticals sector and as this is a global fund I have invested in seven or eight stocks, rather than the one or two that would have been available to me as a UK-only manager. I can – and do – own a range of stocks and can diversify risk.
Overall, the fund has enjoyed strong performance and is up almost 30 per cent since launch, with 3.0 per cent historic yield. Looking forward, Mr Roberts encourages investors to focus on the potential for steady dividend growth, ahead of inflation.
He says: “The fund is up almost 30 per cent since launch, so obviously the yield has come down a bit as the market move has also been quite aggressive. From here, I would comfortably predict a mid-single-digit rise.”
For those investors seeking a higher level of income, the newly launched Global Enhanced Income Fund looks to emulate the success of the Fidelity Enhanced Income Fund, managed by Michael Clark, by using the same covered-call option strategy. Like Mr Clark, Mr Roberts works alongside derivatives manager David Jehan to decide which of the stocks will be overwritten.
“The underlying portfolio is exactly the same as for the Global Dividend Fund, but we then use selective overwriting to increase the yield and lower volatility,” Mr Roberts explains. “I sit down with David on a daily basis and discuss which stocks we should be overwriting more aggressively and which we should be pulling back from. It is not just a blanket overwrite, we are looking to add value through the overlay itself. Overall, we overwrite around 60 per cent of the value of the underlying portfolio, so we are not pushing it too hard and the maturities are typically three months or less.
“I expect the premium we get from writing these options to equate to a 2 percentage point pick up in headline yield for the strategy itself. The type of investor it would be suitable for is either someone looking to draw on the income, perhaps for school fees or for retirement income, or an investor who is more cautious on the prospects for the wider market.”
This is for Investment Professionals only, and should not be relied upon by private investors. The value of investments and the income from them can go down as well as up and clients may get back less than they invest. Source of performance: Fidelity and Morningstar as at 30.09.2013. Basis: bid-bid with net income reinvested. Past performance is not a guide to the future. Copyright - © 2013 Morningstar, Inc. All Rights Reserved. Sector is the IMA Global Equity Income sector. Current yield as at 30.09.2013. The yield is not guaranteed and will fluctuate in line with the yield available from the market over time. The fund should only be considered as a long term investment. The annual management charge is taken from the fund’s capital value, so it may give a higher income, but the fund’s capital may decrease, which will affect future performance. Reference to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. Issued by FIL Investments International, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity Worldwide Investment, the Fidelity Worldwide Investment logo and F symbol are trademarks of FIL Limited. RM1013/SSO/2504/0114
BIOGRAPHY
Dan Roberts joined Fidelity in November 2011 and has more than 10 years of investment experience. He has managed the Fidelity Global Dividend Fund since its launch in January 2012 and also manages the newly launched Fidelity Global Enhanced Income Fund. Prior to joining Fidelity, Dan was a portfolio manager at Gartmore and Aviva Investors. Dan holds a BSc (Hons) in Mathematics from Warwick University. He is also a qualified Chartered Accountant and member of the Institute of Chartered Accountants. Dan is a CFA charterholder and an Associate of the UK Society of Investment Professionals.
