Brexit helps Legg Mason US fund grow over 30%

US-USA-America-Rally-Flag-700.jpgLegg Mason ClearBridge US Equity Income fund has grown by more than a third since the start of 2016, with most of the inflows coming through after the EU referendum, says co-manager Michael Clarfeld.

Clarfeld told Fund Strategy the US fund, which was opened to the UK market in 2011, saw a “significant” level of inflows in June, right after the EU referendum as investors were finding sources of income outside the UK.

He says: “Since the first half of 2016, the portfolio has probably grown a third if not more and now it has reached £100m. It started as a small portfolio.

“We’ve seen a dramatic step up in investors’ interest in our strategy given the tremendous uncertainty wanting high quality low risk US exposure so we’ve been getting more calls.”

The inflows come despite North American equity funds had outflows of £191m and £206m in June and July, according to the Investment Association. However, these were much lower than outflows from UK equity funds which lost £2bn over the two months.

Clarfeld, who invests a “significant amount” of his own money in the fund, says: “Other reasons of the inflows in the fund is that the US economy is relatively better than other economies, so the level of interest picked up way before the Brexit vote but certainly in the week after Brexit we saw a step up.”

Clarfeld’s fund is focused on investing in financially strong companies that can guarantee dividend growth over time, with attractive economic characteristics and predictable revenues. 

The fund, in fact, holds 13.4 per cent in consumer staples with names such as Nestle which makes 2.6 per cent of the portfolio within its top ten holdings. It also invests in industrial and materials, which are areas with economics which “stay the same in the long term”, Clarfeld says.

He adds: “Given that we are so focused on income growth, a big part of our job is to find companies that are initiating dividends and where there is an inflation point in their dividend profile so, for example, when the company has been a meaningful dividend payer but then gets to change that.”

However, Clarfeld admits the fund has underperformed over last year, matching the trend of the majority of US equity managers who lagged their respective benchmarks.

In 2015, the fund underperformed the Investment Association North America sector lagging 0.61 per cent while the sector returned 4.53 per cent. Its benchmark, the Russell 3000 Value TR GBP, returned 1.42 per cent over the same period.

However, it picked up performance over the last three months returning 14.5 per cent against 15 per cent of the sector and 16.5 per cent of the benchmark.

Clarfeld says: “Because of the lower volatility of the fund and better protection in down markets, we managed to retain clients.

“People are focused on valuations of income-related securities problems and compared to many other income investors, we are much less exposed, as, for example, utilities make just 3 per cent of our portfolio.”