Andrew Wheatley-Hubbard has dumped his entire allocation to energy companies in the £142m BlackRock Global Income fund after losing patience with the firms’ ability to control costs as the continued low oil price impacts revenues.
Energy firms have been a contentious holding since the oil price began falling around two years ago. However, while some stocks showed panache to survive with lower revenues, other firms have struggled to curtail costs and implement cuts to capital expenditure.
Mr Wheatley-Hubbard said that he and co-managers Stuart Reeve and James Bristow preferred stocks with more reliable finances. The trio cut the 8.2 per cent energy holding entirely this year.
“When we think about quality companies, we felt these [energy] companies should have adequate control over their costs to be able to protect their cashflows as capex came down,” he said.
“In a world where economies are increasingly uncertain, we want companies who control their own cashflows and have control over their own destinies, and we felt there wasn’t enough financial flexibility and resilience in those business models.”
He added that, although a number of outside factors have recently presented headwinds to energy companies, the move to zero weight was not a reflection of any macro views.
“It’s not a view on the oil price – we don’t take views on short-term macro factors. But we like companies that, whatever happens in the outside world, can sustainably grow their cashflows.”
The biggest theme in the fund has been moving away from defensive sectors, the manager said. This meant a shift from “classic high-yielding sectors” such as telecom and utility companies, and rotating into technology and industrials.
“You find companies with amazing business models, huge barriers to entry. They have a unique product and an installed base that they can service – that model of servicing an installed base is one of our favourites because you install a product and then you get to service it for the next 20 years.”
He cited the visibility of revenues as a strong aspect of many companies in the technology and industrials space, because even if the companies did not sell many products they still benefited from service revenues.
Despite a pronounced move away from defensive equities, the fund has maintained its large weight in consumer stocks. The sector is the highest weighting with 35 per cent of the 60-stock portfolio, and tobacco firms account for three of the top-10 holdings.
The manager believed the reputations of some well-known brand names will ensure that demand in both developed and emerging markets stayed in place for years to come.
“Consumer staples’ demographics [are] a hard thing to argue against and we continue to like companies that are exposed to that.
“It’s not just a whole-hearted ‘we’re going to staples’; we go with our criteria to go fishing and we tend to find a lot of fish in the consumer staples pool.”
The BlackRock Global Income fund returned 53.4 per cent over three years while the IA Global Equity Income sector returned 36.6 per cent over the same period, according to FE Analytics.