The share prices of some UK energy related stocks “make no sense” and so are an opportunity for income investors, according to Vincent McEntegart, who runs the £400m Kames Diversified Monthly Income fund.
The fund has a current yield of over 5 per cent.
Mr McEntegart said: “People look at that yield, which is a tall order to achieve, so people think we must be taking a lot if risk, but really we are not.
"One thing that has helped us this year is we avoided the so-called “Trump trade”, the market pushed the valuation of some assets upwards as it expected Mr Trump to introduce a lot of policies.
"We generally take the view that politicians, wherever they are, the US, the UK or India, say a lot of things but don’t always do them. So we have been helped by that.”
The Kames Diversified Monthly Income fund is ranked 13th from 171 funds in the IA Mixed Investment 20 to 60 per cent shares sector in 2017 year to date.
If skepticism about the worth of a politician’s rhetoric over the past year has helped his performance, the fund manager said the same strategy could drive returns in the year ahead, mainly through his investment in energy companies.
He noted the Conservative Party’s pre-election vow to cap energy prices, that led to a sell-off in the shares of energy companies, but Mr McEntegart has been buying because he is skeptical the politicians will produce a policy to match the rhetoric.
He said: “They might introduce a watered down version of the policy or something, but when you look at the share prices of the sector, there is an opportunity."
He said the shares of National Grid, a FTSE 100 energy company, are 20 per cent down over the past year.
Mr McEntegart said: “The reality is, even if the policy changed, the portion of your bill that goes to National Grid is tiny, and they have revenue streams from other areas.When you look at it like that, the share price makes no sense.”
He is not particularly keen on the UK as a market, saying he expects some further negative impact on the economy as a result of the European Union referendum vote.
Mr McEntegart’s exposure to the UK market is largely in what he calls “boring” income stocks, notably in the tobacco and insurance sectors.
But the fund manager has long been positive on the investment case for property shares, with 15 per cent of the capital deployed in property companies around the world, including the US and Singapore.
Only 2 per cent of the capital is in UK property, with Tritax Big Box Reit, a company that owns large self-storage units in the UK, is one of the 10 largest investments in the fund.
Doug Millward, investment manager at Lowes Financial Management, said he does use property funds as a source of alternative income, but he tends not to do it through real estate investment trusts, as those assets, being funds listed on the stock market, have equity like volatility and so are not providing the diversification he wants from low risk clients.
david.thorpe@ft.com
