Portfolio picks  

Being highly selective in backing new issues

Being highly selective in backing new issues

To paraphrase John D Rockefeller, the only thing that gave him pleasure was to see his dividends coming in. 

While dividend income may not be at the top of everyone’s list of pleasures, it is clearly an important element of the long-term total returns generated through equity investment.

While income has and will always been in demand, the policy response to the Global Financial Crisis (GFC) has made it more difficult to find.

Savings accounts, government securities and bonds offer meagre returns by historical standards and while interest rates are likely to edge up further, the search for income from other sources looks set to continue.

In the investment companies sector the quest for income has proved to be something of a boon, with a steady flow of new and secondary issues from an ever increasing range of alternative strategies.

Be it infrastructure, renewable energy, property, specialist lending, platform lending, leasing, structured finance, music royalties or battery storage, the key component has been the promise of a dividend yield of at least 5 per cent and often considerably more.

While there have been some new conventional equity trust issues, the alternatives have accounted for two-thirds of all fund raisings since the GFC.

As the manager of a fund with a long-term capital growth objective I don’t have an overriding requirement for income, so in many respects this alternative new issue boom has passed me by.

I do, of course, recognise the importance of a good dividend discipline but believe that superior long-term total returns can be achieved from exposure to both a growing dividend stream and the growth in corporate earnings.

In other words my primary focus is on conventional equity invested trusts, although I will, at times, consider fallen angel alternatives if I can perceive a catalyst for change.

Following a typically quiet summer it was no great surprise to see the new issue printing presses whirring back into action, such that at the last count the number of prospective new and secondary fund raisings was in the high teens.

It was, however, somewhat surprising that the list included a relatively high proportion of conventional equity trusts. At the time of writing only one of these issues, Mobius Emerging Markets, has closed, while roadshows continue on the others.

Despite falling short of its initial target the Mobius trust still raised £100m, which must be viewed as a success given the prevailing poor sentiment towards emerging markets and augurs well for the other launches assuming stable market conditions in the coming weeks.

As an investor who really likes to buy assets for less than their worth, the notion of paying a premium to asset value has rarely appealed, yet that is usually the case with IPOs as the issue costs are deducted from the offer price.