Smith & Williamson’s Tineke Frikkee is working to refocus her new fund after saying the portfolio “lost its way” in the past.
One of the manager’s first moves has been to tighten up on the fund’s objectives, building on the work co-manager Mark Swain started at the beginning of the year, after conceding that its track record has been “poor”.
“There’s been a bit of refocusing on the objective side, because the fund lost its way a little bit there. The objective is to achieve a high and growing income over the long term,” the manager says. “In the past, the fund’s dividend distribution has been up and down. I believe this is not what clients want.”
Frikkee adds that the spirit of the fund will be to grow the dividend every year ahead of the retail prices index over the long term. She aims to do this by tilting the portfolio towards yield and dividend growth, while any re-rating of shares would be “icing on the cake”.
In terms of changes to the portfolio, Frikkee has been selling exposure to oil and gas companies while considering lifting allocations to the out-of-favour mining sector.
Smith & Williamson UK Equity Income holds Shell, which the manager is happy with, and BP – which she has already brought down and is considering removing from the portfolio altogether.
“BP has lower quality and visibility of earnings and cashflow than Shell and I think the valuation is not particularly attractive. There’s not many big oil companies that make positive spreads on return on capital – Shell scores better than BP here,” she explains.
The manager is thinking of switching some of the fund’s oil and gas exposure into mining “when the momentum is right”, as she considers this to be a more interesting story. The fund currently owns Glencore Xstrata and Rio Tinto, which are held as value plays.
“Miners are below book but the earnings momentum is still negative. It feels like it is getting a bit more stable,” she says.
“It’s a value call but both of those are dramatically enhancing their quality through changing management and prioritising return on capital. There’s now a real focus on cashflow return on capital, which fits in with the focus of this fund, and their balance sheets are incredibly strong so we think they are just too cheap.”
Smith & Williamson UK Equity Income’s performance by calendar year
|Smith & Williamson UK Equity Income||19.50%||12.18%||-9.06%||16.87%||15.92%|
|IMA UK Equity Income||18.05%||14.01%||-2.90%||14.58%||22.88%|
|37 / 97||57 / 95||84 / 88||23 / 86||58 / 74|
Source: FE Analytics