Henry Dixon took over the GLG UK Income fund in December 2013, shortly after joining GLG Partners from fund manager Matterley.
Jack Barrat also made the move from Matterley to co-manage the £78.9m fund alongside Mr Dixon. Their aim is to achieve a superior yield to the FTSE All-Share and to grow that yield. “We think the best income generators are established businesses with very strong finances,” Mr Dixon says.
The managers believe they approach the notion of an income fund “slightly differently” from other offerings because they do not necessarily consider dividend yield as their “starting point”. Mr Barrat admits that the search for yield is “very in vogue”, but that they place more emphasis on a company’s ability to pay its dividend.
He says: “Its ability to pay its dividend or to distribute cash to shareholders is made up of the outlook for the company in general, the free cashflow generation of that company and, importantly, the management’s ability to be good custodians of capital. [So] we trust them with the free cashflow generation from the corporate to either distribute that cash to shareholders in a responsible way to be able to maintain the dividend or, if they have investment opportunities within the business, to reinvest it in the business.”
There has been a bit of movement in the portfolio recently, with some rotation among insurance names and the realisation of profit in some of its real estate holdings.
A bid approach for Brit Insurance earlier this year prompted the managers to rotate out of the stock and into Admiral Insurance. Mr Barrat explains: “The reason we like a company like Admiral is we think that cash generation is absolutely sustainable at this level in the UK business and there’s some quite exciting international growth as well. So we think the starting point is a 6-8 per cent yield.”
Mr Dixon adds: “What we’ve seen is there’s been a huge following for the real estate sector. If we rewind one year it was a sector that was trading at a reasonable discount to asset value – very attractive yields relative to fixed income. [But since then] the yield has fallen well below market averages, which is very rare to see the companies trading at less than market yield.”
This has forced the managers to look at unfashionable areas of the UK market, such as the resources sector. Mr Dixon concedes: “Where we can find businesses that are very cashflow positive at the current price juncture, profitable and also incredibly well financed, we’re happy to spend our money. Now I would highlight these opportunities are quite rare [in resources].”
The fund is placed at level six out of seven at the riskier end on a risk-reward spectrum, with ongoing charges of 0.95 per cent applied to the clean class C professional accumulation shares.