Low-tech leanings
Another interesting facet of the fund’s current portfolio are the names that are not in it, including tech giants such as Apple, Facebook and Amazon. Roberts says this has a lot to do with their commitment to paying dividends and the fact that these companies are still investing in expansion.
“I think the dividend is probably the last thing on their minds. They are still in full-on growth mode,” he says.
However, the fund does hold some of the ‘older’ tech giants such as Microsoft.
Roberts points out that Microsoft shares did very little in terms of price movement for nearly a decade, as the company transitioned from a high-growth stock to a more mature dividend payer, now offering an above-average yield.
Another unusual area the portfolio is underweight in, given its strong geographical allocation to the US, is the banking sector. The fund only has one American bank in its portfolio, US Bancorp.
“I like that particular bank because it is not complicated. It has a traditional banking model, taking deposits from the likes of you and me and lending those out as commercial loans or mortgages on the other side of their balance sheet. There is no investment banking operation,” he says.
He adds: “I have a bit of a structural bias against banks because of the very low return on assets and the complexity, cyclical nature and the gearing of those businesses.”
Roberts is biased against companies and sectors like banking in general, because of his intense focus on capital protection.
“As fund managers we have a duty to our unitholders to look after their capital. I think the best way you can achieve that is to consider it to be your own.”
Disciplined defence
When asked about prospects for any change in the current makeup of the portfolio, Roberts says his valuation discipline makes it hard to predict which companies will come into his sights.
However, he notes there is currently a clear defensive tilt to the portfolio, which gives him the capacity to add more cyclical companies to the fund if the economic outlook brightens. “There is a list of stocks within that space I would be happy to buy. I just want to buy them at the right price,” he says.
“Cyclical exposure can increase but I don’t think now is the right time to do that. That will be dictated by valuations and prices in the broader market.”
In part, this inherent conservatism comes from his experience in the markets. “As you mature you learn to stand back from the noise and take a longer-term view. If you are doing that, you have a much better chance of getting it right.”
Roberts believes this stance dovetails with that of investors seeking a long-term retirement income. “A clear outcome I am trying to deliver from this strategy is what I call a healthy yield. By that I mean a relatively attractive headline yield,” he says.
According to the fund’s latest factsheet, the yield is around 3% a year. With the rise in longevity, many investors now have to consider a 20 to 30-year horizon after retirement in terms of how to allocate their pension pot.
Says Roberts: “This product is appropriate for that kind of investor.”
