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Investors in the income share class have received just over 4p per unit, launched at 100p, ahead of the 3.9p targeted. But capital performance has been disappointing, with the income shares down nearly 10% since launch. With dividends reinvested, investors are down around 6%. The FTSE All-Share is up 1.2% over the same period.
Clayton said the concentrated nature of the fund – which has around 30 holdings – meant that ‘one can make a real impact on performance, good or bad’ and performance was likely to vary ‘significantly’ from the wider market at times.
There was just one holding where the dividend disappointed. Provident Financial cancelled its payout last year amid a botched restructuring of its home credit division, as it delivered two profit warnings and faced investigations by the Financial Conduct Authority (FCA).
Shares in Provident Financial are down 69% over the last year, despite rallying over the last month on news of a smaller-than-expected rights issue and FCA settlement.
Clayton said ‘that holding accounts for most of the fall in the fund’s value’. He started selling out of the stock last year, fully exiting the position in December. He also sold advertising group WPP (WPP), which has seen trading ‘deteriorate’.
‘We sold out of (gaming software developer) Playtech (PTEC) too, when it became clear that their market positioning was weakening,’ said Clayton.
The fact that commodities and cyclicals are in favour at the moment has also affected the fund, and Clayton said in this market the fund would be expected to lag.
‘We much prefer to invest in companies with a strong degree of control over their own destiny,’ he said.
An underweight position to commodities cost the fund 2.4% in relative performance and fears over a possible Jeremy Corbyn victory hit utilities, costing the fund around 1.2%.
‘In the near term that has created a headwind. But commodity-producing companies can only ever be price-takers, not price-makers, so while their yields can be enticing, we intend to keep exposure low.’
One of the best performing stocks was financial markets software provider Fidessa (FDSA) – the fund’s largest position at 5.6% – which has received a takeover ‘at a price some 40% above the position’s book cost’, said Clayton.
The disposal of some positions and trimming of others has given Clayton (pictured) the flexibility to invest in ‘some faster growing business, which will hopefully generate good earnings and dividend growth in future’.
He started a position in the world’s largest catering company Compass Group (CPG) that has a ‘hugely cash generative business model that has served investors well for many years’.
The fund also invested in IT company GB Group (GBG) that verifies customer identities in e-commerce transactions.
Increasing exposure to online companies, Clayton invested in online takeaway service Just Eat (JE), which he said was ‘growing like Topsy’.
Pension administrator Xafinity (XAF) is also a new holding in the fund and although it does not handle the pension investments, it does administer the income streams that ‘like the pensioners themselves, are set to run for decades into the future, with excellent dividend potential along the way’, said Clayton.
He is expecting double-digit dividend growth from nine holdings over the coming year, and growth of between 5-10% from 12 positions. The remaining 10 stocks are expected to deliver flat dividends or growth of under 5%.