Of course, if you want to achieve something different, you’re going to have to do something different. In this respect, the real maverick fund managers are not those ignoring the yield targets, rather it is those investing in areas where the cuts are actually happening.
An example would be the ever contrarian Clive Beagles and James Lowen’s JOHCM UK Equity Income Fund, which sits in the sector with an historic yield of around 4.8%.
The managers have actually been building up their exposure to oil & gas following the dividend cuts that have blighted the sector.
Glenn Meyer, head of managed funds at RC Brown, believes this is a sensible strategy which sticks out from the many conservatively run ‘me-too’ funds which populate the UK Equity Income sector.
“The cashflow from operations is sufficient to dig the stuff out of the ground, turn it in to metal and sell it into a market where there is a depressed price,” he says.
“But [as a resources firm] you have already done all of your recalibration, you’ve cut your dividends and your big expenditure and you’re buying into something for the uplift of the cycle where earnings and dividends are likely to grow.
“Clive and James are better at saying they are going to look through that and buy after the dividend cuts and start adding to it than be stuck like other income funds that are holding fingers crossed behind their backs hoping that that dividends don’t get cut.”
The Starsky & Hutch of equity income investing, anyone?
