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Fund Review: Neptune US Income

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Fund review: US Income

James Hackman took over the running of this £30m fund in June 2014. It was launched by Neptune in September 2010 and aims to deliver rising levels of income with the potential for capital growth.

The manager notes: “The fund is designed for investors seeking regular equity income and long-term growth from North America. It pays distributions four times a year, and offers investors the opportunity to diversify their income sources outside of the UK while maintaining a focus on total return.”

Mr Hackman adds: “My priority is to deliver outperformance while focusing on the ‘three Ds’ of dividend growth, defensive positioning and diversification.” The manager has made several changes to the stock-selection process since taking the helm. “I shifted the focus of the fund in 2014 from companies with high dividends to those with growing dividends,” he explains.

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He cites research that shows firms paying dividends outperform non-dividend payers over time driven by the power of compound interest, “but companies with growing dividends typically outperform [those] with purely high dividend yields on a total return basis”.

The manager says: “The same report also demonstrates the importance of avoiding dividend cutters, hence the fund’s focus on being defensive. The US offers those seeking income a broad range of sectors that are not available in the UK – for example, information technology [currently more than 22 per cent of the fund] . This offers diversification for income investors from the traditional high-yielding sectors such as telecommunications and utilities.

“When I took over the fund, the yield was 3 per cent compared with the S&P 500 [index] dividend yield of 2 per cent. It now targets 110 per cent of the S&P 500 dividend yield.”

Mr Hackman adds: “Neptune’s approach is driven by a proprietary investment process based on the philosophy that the world of equities should be viewed at a global industry or sector level, rather than taking the more traditional, regional, benchmark-driven approach. This premise is built on the fact that global companies dominate the sectors in which they operate.”

Neptune’s economics team is the “first layer” of the investment process, conducting country-based reviews to examine not only economic conditions, but also the social, political and capital market situation. The manager says he also draws on the work of the in-house sector team, which researches global sectors and individual firms.

Ongoing charges for the clean fee C-retail share class are 1 per cent, while the fund is ranked at level five on a risk-reward scale.

The fund has slightly underperformed both the S&P 500 index and the Investment Association North America sector. In the five years to December 16 2015 it delivered 67.5 per cent, against the sector’s average return of 69.7 per cent and the index’s gain of 83.5 per cent. But in the past 12 months the fund has only lagged its benchmark, returning 8.5 per cent versus the index’s rise of 9.9 per cent, while the sector posted an average return of 7.5 per cent.