Best In ClassJan 6 2022

Best in class: TB Evenlode Global Income

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Best in class: TB Evenlode Global Income

Rising profits and strong balance sheets lifted payouts 22 per cent to an all-time high of $403.5bn (£297.6bn) in the third quarter, according to the latest Janus Henderson Global Dividend Index. An impressive 90 per cent of companies raised dividends – or at least held them steady – during the period, while large special payouts boosted the headline total.

“With balance sheets bolstered last year by new equity and debt issuance, and profits on the mend, a lot of the cash generated by companies is finding its way to shareholders in the form of dividends,” it concluded. 

According to Janus Henderson, the tremendous performance achieved during the third quarter will make 2021 a great year for payouts to investors. It predicts headline global dividends are expected to jump 15.6 per cent this year to a bumper total of $1.46tn, which would beat the pre-pandemic record set in the 12 months to March 2020.

“This means global dividends will fully recover from their March 2021 mid-pandemic low within just nine months, restoring their long-term growth rate back to the 5 per cent to 6 per cent trend,” it concluded.

The even better news for investors is that, when it comes to global equity income, there is a plethora of choice, with more than 50 funds in the sector. 

This week’s best in class is one of our favourites in this space and a fund we have backed since its launch in November 2017.

TB Evenlode Global Income fund was launched to emulate the success of the TB Evenlode Income fund, while benefiting from a wider global remit. And successful it has been. Since launch it has returned 62.6 per cent vs a sector average of 38.5 per cent placing it among the top five.

And importantly it has been consistent throughout, posting first or second quartile performance in each calendar year. 

Managers Ben Peters and Chris Elliott have a clear investment philosophy and a process, and the fund has four key objectives: grow the dividend on a consistent basis; compound returns at a high annual rate; outperform major global market indices over the long-term; and generate returns with lower volatility and downside risk.

The portfolio is almost entirely constructed on a bottom-up basis and does not seek to predict short term moves in the economic cycle. The managers take a long-term approach with an average holding expected to be around five years and they aim to reduce volatility and downside risk by having a bias towards businesses that generate cash flow throughout the economic cycle.

These companies will typically have three characteristics: asset-light business models; high barriers to entry which can not be easily disrupted; and their customers’ decision to buy their product or service should not be determined completely by price.

Their strict criteria leads to an investable universe of around only 85 global companies before valuation is even considered. For these companies they build a long-term financial model (typically 10 years plus). They also undertake detailed fundamental analysis including analysing the competitive landscape and meeting company management. Almost all research is done in-house. 

Peters says the portfolio can be expected to lag in a strong market as aggressive investor preference moves away from stable, steadily growing businesses in search of increased returns. “The companies we invest in are not really the sort to get the pulse raised too much day-to-day,” he says. 

Seventy per cent of the portfolio is invested in three core sectors: consumer goods, healthcare and information technology. “Companies within our ‘big three’ sectors all exhibit asset light, cash generative and steady growth characteristics,” says Elliott. “These are base requirements that fit with our aim of delivering a steady and growing income stream.” The yield is currently 2 per cent and predicted to grow.

The IT sector has been the standout sector for the fund in recent months. “Large IT companies servicing global business have been en vogue, with pre-pandemic trends accelerated by the shove of many of our working and social lives into the online realm thanks to Covid-19,” Peters adds. 

“For example, Microsoft and Oracle’s stocks both delivered plus 50 per cent total return this year in sterling to the end of October. This market action is being backed by real-world results; in the most recent quarter, Microsoft’s revenues increased by 22 per cent year-on-year, thanks in no small part to its cloud businesses growing by 29 per cent and its profit margin also expanded." 

The portfolio has seen robust revenue and profit performance through 2020 and 2021. “Importantly, the current valuations of our portfolio companies are compelling in absolute terms but particularly in the context of a market that continues to rise,” says Elliott. 

“As we look to the future, some of the factors that are currently causing supply chain disruption and demand spikes will likely abate, but other trends will certainly emerge.

"We select a diversified portfolio of companies across a range of industries and geographies with the financial resources to absorb negative short-term impacts and make the most of longer-term shifts in demand. In doing so the portfolio is well-prepared for the worst, but also ready for the best of what might happen."

Darius McDermott is managing director of FundCalibre