The £30m Premier Global Utilities Income fund has been managed by Claire Long and James Smith since July 2012, at which point the objectives of the fund were overhauled.
Initially launched as the Premier Global Power and Water fund in 1987, the vehicle invested predominantly in renewable energy and utility technology companies but, following Mr Smith’s appointment, the investment strategy focused on income and long-term growth through investing in global utility investments. The fund was renamed the Premier Global Utilities Income fund in December 2014.
Sitting in the IA Global Equity Income sector, the fund aims to produce income and long-term capital growth, achieved with low returns volatility and low correlation to markets. Ms Long explains: “The fund invests in utilities in both developed and emerging markets with a preference for regulated stocks with stable, visible cash flows and growing dividends.”
Since 2012, the fund has focused on the regulated monopolies operating electricity wires, and gas and water pipes around the world. Ms Long says: “These are distinct from areas such as power generation and energy supply, which, in most countries, are competitive, market-based activities, and which are only a secondary focus for the fund.”
Given this specific focus, the manager points out there is less of a macroeconomic tilt to the fund, as “regulated utilities can be shielded from demand risk, insofar as their returns are set by an independent regulator with reference to their asset base rather than sales”.
She adds: “Regulation typically also enables these companies to pass through interest costs and movements in commodity prices, and also provides an inflation linkage. As such, they can be relatively protected from macroeconomic movements that occur during a regulatory cycle – at least until the next regulatory review. In addition, as they essentially operate domestically, the fortunes of regulated utilities are driven by domestic, rather than global, factors.”
|EXPERT VIEW - Oliver Stone, head of research and deputy portfolio manager, Fairstone Private Wealth|
|This fund aims to provide growing income with long-term capital growth through investment in companies worldwide involved in the power, water and listed infrastructure sectors. Run by Claire Long and James Smith, the fund exhibits a mid-cap, value bias, despite having exhibited a few periods of relative underperformance under the managers’ tenure, it does stand out as a potential, albeit specialised, diversifier among other global equity income funds due to the portfolio’s sector specificity and geographic variation.|
In the past four years, the fund has typically maintained a weighting of 15-20 per cent in China, although Ms Long notes: “This year, we have reduced the fund’s exposure to coal-fired generation in favour of cleaner energy. Beijing Enterprises Holdings, which owns Beijing’s gas distribution network, is one of the fund’s largest positions. With China seeking to reduce air and water pollution, increasing gas usage has seen the company grow its earnings between 2010 and 2015.”
The manager adds that the team does not attempt to mimic the make-up of global utility indices, which are dominated by large US and European names, but instead has “constructed a portfolio that draws on the team’s analysis of the utility universe and encompasses a significant number of smaller or under-researched companies alongside more ‘household’ names”.