Why delivering a dividend isn’t enough for S&W’s Frikkee

‘Just delivering a dividend is not enough, I want excitement,’ says S&W’s UK Equity Income Trust manager 

When Tineke Frikkee stepped into the shoes of Clive Beagles a decade ago to run the Newton Higher Income fund, the eyes of the investment world were very much upon her.

Beagles, who himself had shoes to fill having taken over from New Star-bound Toby Thompson in 2001, left to join JO Hambro Capital Management. This left Frikkee, who joined Newton in 1998 as assistant fund manager to Thompson, in sole charge of a £1.5bn fund. She had only completed her CFA and IMC in 2001, and her only previous managerial experience was running a third-party UK equity income mandate for Prudential.

“My focus is on picking stocks and making money for clients, but when you take on a retail fund you also have to deal with having a public profile,” says Frikkee.

“This involves spending a lot more time seeing clients and doing more press coverage, which are aspects you don’t really consider in training and are never sure if you like.”

Flash forward 10 years and the environment in which Frikkee operates could not be more different. Having been replaced on the Newton Higher Income fund in December 2012, Frikkee joined Smith & Williamson last summer, with her task being to manage its UK Equity Income Trust. Unlike the £1bn-plus portfolio she inherited at BNY Mellon, which peaked at £3.2bn in 2007, the fund she took over at S&W was a meagre £8m, and all of it internal money.

But having been tied to a strict investment process at BNY Mellon, one in which the fund she managed had strict yield disciplines, she says the flexibility afforded to her at S&W was one of the main attractions for her.

“Having worked at Newton for 15 years, where it had its house-led global thematic approach and a very strict process around the higher income process, I asked myself if I wanted to do this again or do something a bit more flexible and it was the latter which appealed. So I looked for somewhere I could run a fund the way I thought was right from both a total return and volatility point of view that investors would be interested in.”

Despite enjoying being involved in growing the assets of Newton Higher Income, Frikkee says its success brought restrictions. She could no longer invest in small and mid caps, while if she had a great idea to add a stock into the fund, it could take three weeks to buy in.

“I want to build wealth for my clients over the long term and with Smith & Williamson there is a longevity to the firm, where clients have been here for decades and so have some staff, so the culture was the right fit.”

Joining in July, Frikkee was handed the keys to the S&W UK Equity Income Trust, a fund which had been under the caretaker stewardship of Mark Swain since January 2013 following the departure of previous manager Charles Deptford.

Frikkee described a portfolio that had “lost its way”, not under Swain but the previous manager. “Before Mark took over there was an extreme barbell approach being used, with some stocks in the fund carrying no yield and others yielding over 8 per cent to compensate.

“This is very risky and not I concept I like. Mark recognised this first and cut it back on both sides while I put more of a philosophical framework in, moving the focus away from a focus on stocks yielding 4 per cent to a more flexible focus on those yielding 2-6 per cent.”

Flexibility seems to define the new way of thinking for Frikkee. “Equity income funds have perennially struggled with how to balance income and capital returns,” she says. “At Newton the focus was on the former, but here I wanted to do something a bit different, something that combined the two. It is a very different beast to the Newton fund.”

Indeed, with some 60 per cent of the portfolio’s assets currently invested in cyclicals and 38 per cent in mid caps, she says it is very pro-growth at present.

“For me just delivering a dividend is not enough for this fund – I want some excitement,” says Frikkee. “That has been the big change, getting that balance between capital gains and an interesting yield.”

There are other differences between the fund Frikkee manages now compared with the one she left in 2012. Her investment universe has increased nearly fourfold from about 100-120 stocks to circa 400. By being more focused on mid caps and having less mega-cap exposure, Frikkee has also stopped using covered call options and special cum dividends, tools which attracted criticism from some quarters during her tenure at Newton.

“I don’t need to use them as I have so many stock ideas. All call options are on FTSE 100 stocks. There is nothing wrong with these, I just do not need them.”

Frikkee says her turnover has nearly doubled from 40 per cent a year to 80 per cent, while she has also adopted a strategy of equal weightings in the portfolio. “An equal weightings approach means that you balance dividend yield, dividend growth and capital returns.”

From July 1 2013, when she took over, to 30 June, the fund was up 14.9 per cent, according to Morningstar, placing it second quartile in the IMA UK Equity Income sector, which delivered a mean return of 13.5 per cent. Performance since then has come back a bit, with the portfolio’s mid cap impacting performance owing to the recent pull-back. In terms of assets, the fund has grown from £8m since she took it over to £33m now.

“With this fund we wanted to offer something genuinely different and we think that this flexible approach gives it that. The big managers must get bored, here I have been able to unleash my inner investor and it is something I think I can continue to do up to £1bn. After that, the constraints set in.”

With the shackles somewhat removed, Frikkee says she is learning more than ever at her new firm. She says she is “invigorated by learning”, but she also comes across as an invigorated investor.

It makes you ponder why a certain other income manager wants assets so quickly.

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1998: Joins Newton as assistant fund manager on Newton Higher Income fund

2001: Completes CFA and IMC

2004: Takes over sole charge of fund following departure of Clive Beagles

July 2013: Joins Smith & Williamson to run UK Equity Income Trust