New batsman aims to up his game

After a change to its benchmark, the new manager of the British Asset Trust tweaked its asset allocations, which, he says will give more flexibility, while at the same time, protecting dividends.

After a decade-long tenure Julie Dean passed on the baton of the management of the British Asset Trust (BAT) to Phil Doel on October 1, following her decision to retire.

To coincide with the manager taking over, the £430m trust, which was launched in 1898, has undergone some subtle changes, with a change to its benchmark and a rise in its allocation to higher yielding equities.

“We have tweaked the model, but not the process,” says Doel, who also manages F&C’s £190m UK Equity Income fund.

As a result from October 1, the global growth and income investment trust changed its benchmark from a composite of 75% FTSE All-Share index and 25% FTSE World (ex UK) to 80% and 20% respectively. (Investment trusts continues below)

The fund has also amended the objective of its quant-run global portfolio to a high-yield mandate, which has an anticipated yield of 4%.

Doel says the UK equity exposure was increased as Britain is one of the higher-yielding global equity markets.

According to Winterflood Investment Trusts, this represents a change in the opposite direction to several other funds making changes of late to diversify their income exposure.

This follows feedback from BAT shareholders who indicated they hold the fund primarily for income.

“Moving to a position where our dividend is fully covered will give us more choices,” says Doel. “We recognise the importance of the dividend to shareholders and we believe our strategy will get us to the position where the dividend is fully covered, assuming our forecast of modest growth in market dividends is correct.”

For the third year BAT has maintained its dividend at 6.112p per share, which is equivalent to a yield of 5.4%. Simon Elliott, the head of research, at Wins says this yield is attractive in the low interest rate environment and the changes to the ­portfolio to increase the dividend cover are “promising”.

“Companies are profitable, though they are retaining a lot of their profits as cash rather than reinvesting in the business, which means balance sheets are strong,” says Doel. “Dividends are a low-risk way of growing shareholder returns and we expect that to continue.”

In terms of the fund’s overall geographic allocation Doel says the portfolio has been structured so that it remains overweight in emerging markets as they are expected to show the strongest level of overall growth.

”Moving to a position where our dividend is fully covered will give us more choices”

In the trusts’ half-year financial report announced in May, the fund’s overweight position to emerging markets was seen as a detractor to performance, when their
performance lagged that of developed markets. While the overweight has been reduced slightly, Doel remains optimistic in the long-term.

Outside emerging markets Doel does not think there will be a sustainable rally in equity markets until there is a sustainable solution to the European sovereign crisis.

In his view this means a structural change, either being a change in the eurozone membership, or the creation of eurozone bonds.

“Eurozone deleveraging will mean sluggish growth at best,” Doel says. “But as long as there is some economic stability, the rest of the world can continue to grow.

“Our central thesis is that the US economy can continue to exhibit growth, although it will likely be below trend levels of recent years.”

According to Lipper over the year-to-date the fund is lagging its new benchmark, with the share price falling 8.2%, compared with the benchmark, which is down only 4.6%.

In addition to changing the fund’s benchmark, from October 1, BAT saw its basic management fee increased from 0.3% to 0.4%, but it is no longer entitled to a performance related fee.