This £87m fund was launched in May 2011 and has been managed by Diane Sobin since November of that year, with Nadia Grant joining her on the vehicle in March 2014.
The aim is to achieve 150 per cent of the dividend yield of the benchmark and to increase capital by investing in companies with strong dividend growth characteristics.
Ms Sobin notes: “Historically, companies with dividend-growing policies have outperformed the market over time, which provides a nice support for long-term capital appreciation.”
The fund has a relatively concentrated portfolio of around 70 holdings, with the manager noting that when the team selects stocks it first looks “for companies below their normalised earning potential that have stable margins and the potential for incremental margin expansion”.
Ms Sobin adds: “We believe this allows us to capture the alpha opportunity available as businesses pass through the steepest of their growth curve. We can identify these opportunities across style and market-cap ranges.”
The manager also highlights the advantages of being part of the large Columbia Threadneedle franchise, which runs a number of US equity funds that provide “a deep research capability upon which we can draw to identify stocks with the fundamentals we look for”.
From this universe the team then screens for the dividend characteristics it believes can support good dividend growth, but Ms Sobin notes that “the emphasis is on fundamentals first”. She adds it is also important “to consider macro and micro factors in order to form a better perspective on each opportunity”.
She explains: “We believe our macro perspective is strengthened by working closely with our colleagues covering other equity markets, such as Europe and Asia where most US exports go, and those covering other asset classes, such as government bonds, credit, currencies and commodities. This is facilitated by our highly collegiate culture, as well as a framework for sharing information at different forums on a weekly, monthly and quarterly basis.”
Since launch the institutional income share class, which has a risk-reward level of five out of seven and an ongoing charge of 0.71 per cent, has significantly outperformed its peers in the Investment Association North America sector. The fund has delivered 77 per cent between May 31 2011 and December 16 2015, compared with the sector average return of 65.3 per cent and the S&P 500 index gain of 81 per cent, data from FE Analytics shows.
Ms Sobin notes: “We are happy with how the portfolio has been positioned in 2015, and any changes have been at the margin in terms of some specific stock purchases and sales. The fund tends to have relatively low turnover, with an average holding period of around two years, which we see as sufficient time to test and validate our investment thesis for a stock.”
She adds a key part of recent performance has been the vehicle’s focus on dividend growers rather than the highest yielders. “Especially in 2015, some of the highest yielding companies have come under pressure as the market has started to anticipate higher interest rates. This means that some bond proxies that were bid up in the chase for yield have started to look quite expensive by historic standards,” the manager says.
Ms Sobin notes some of the fund’s top-performing stocks have included several financials, such as BankUnited, a regional bank focused on the south-eastern part of the US. “We believe there is a significant dividend growth opportunity [in financials] as the sector’s payout ratio is still below its historic average and can help bring the payout ratio for the broader US market more closely in line with other major global equity markets.”
Although the worst-performing sector in the index has been energy, the manager notes the area “has been one of our most successful hunting grounds”.
Looking ahead, Ms Sobin remains optimistic, noting a key focus will be the impact of higher interest rates. “As rates rise the valuation of some of the highest-yielding, bond proxy stocks could come under pressure. A focus on the highest dividend-growing stocks, rather than the highest dividend-yielding stocks, can help to protect capital in 2016,” she adds.
EXPERT VIEW
Ben Willis, head of research and investment manager, Whitechurch Securities
Diane Sobin heads up Columbia Threadneedle’s US equities desk, taking over several mandates when the previous established team upped sticks and joined Artemis. The big question is whether she can successfully run all of the several mandates she is now accountable for. However, Columbia Threadneedle certainly has plenty of resources to back her up and, to her credit, she has more than managed to keep pace with the big players in this sector. One to consider.
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