Argonaut launches European income fund

By Sam Shaw

Added 14th November 2016

Argonaut Capital is set to open a long-only, high-yield European income fund targeting companies yielding 30% above the index after its first year, subject to regulatory approval.

Argonaut launches European income fund

Greg Bennett

Greg Bennett will run the Argonaut European Income Opportunities Fund, taking on the boutique’s income mandate five months after Olly Russ, who co-founded Argonaut with Barry Norris, left to join Liontrust.

At the time, Russ said assets under management in his income fund had been “static” and better sales and marketing support was expected at Liontrust.

Bennett, who was deputy manager to Russ, has also been Norris’s co-manager on the European Alpha and Absolute Return funds since January 2013. He joined Argonaut from Marlborough Fund Managers in October 2011.

Norris’s process, which focuses on earnings surprise, will be applied with an income tilt, with Bennett seeking “dividend surprise”.

The fund will look to invest in companies generating 20% annual yield in excess of the benchmark index in year one, while in subsequent years this target will increase to 30%.

Argonaut’s current model portfolio has a gross yield of 5.7%, more than 50% above the 3.6% yield generated by the MSCI Europe ex UK index.

Bennett said: “Our investment process, which is central to all Argonaut funds, focuses on understanding corporate earnings trends and balance sheet analysis.

“This will not only assist us in identifying companies with the ability to pay dividends higher than expectations, what we refer to as ‘dividend surprise’, but also assist us in avoiding yield traps.”

He added that investing in Europe enables him to avoid the crowded trades for many UK-listed income funds.

“There are 75 UK equity income funds all chasing a limited number of stocks offering high dividends. In the top 10 funds – which constitute 60% of sector assets – there is a high concentration of the large household pharma and oil major names,” Bennett said.

“For example, 80% of the top 10 funds have AstraZeneca within the top 10 holdings – while GSK, Royal Dutch Shell and BP also feature prominently.”

The fund will be a long-only, daily dealing Oeic in a Ucits structure paying a quarterly dividend.

Base currency will be sterling and an offer period will be available where the fund will be available to founder investors for 35 basis points. Thereafter the annual management charge will be 65bps.

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