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A North American equity fund that seeks to generate a yield of 1% above that of the index. The portfolio is managed according to a well-established value approach, married with a yield discipline. Within its sector, the fund features in our 'Larger-Cap, Value - Dividend Strategy' category.
The fund's KIID Synthetic Risk and Reward Indicator (SRRI) is 5. This is a regulatory measurement that is, where possible, calculated from the volatility of its weekly performance over a five-year period. A score of 5 means the fund's historic volatility is between 10% and 15%.
The fund's five-year standard deviation is broadly in keeping with that of its peer group and is significantly lower compared to its benchmark. Also to be expected is a relatively high tracking error versus the index, partly because of structural biases in the fund's composition, although it is likely to be lower than many US equity income peers.
The fund is co-managed by David Silberman and Andrew Brandon. Messrs Silberman and Brandon are both portfolio managers in the firm’s US equity group. Mr Silberman has been with the firm since 1989 and joined this fund in 2019 as co-manager. Mr Brandon has been with JP Morgan since 2000 and was appointed co-manager on this fund in 2019. The team’s US Equity Income strategy was borne from the firm’s well-established value approach.
The team members believe that a company which is able to generate free cashflow on a consistent basis and allocate capital effectively to generate growth in value per share, will outperform over the long term. They focus on undervalued businesses with durable franchises and strong management as this is where they find the most consistently rewarding opportunities.
The fund features 85-110 names and the maximum stock weighting is 5%. Position sizes are a function of the managers' strength of conviction, the risk/reward opportunity and aggregate portfolio considerations of diversification, but are typically in the 1% to 3% range. There are no sector guidelines but the managers aim to ensure appropriate diversification. Stocks must offer a 2% dividend yield at the time of initiation.
The investment process is bottom-up in nature and designed to highlight the companies that are believed to offer the greatest potential against their current market values. Their search for these undervalued companies is set up so that those that fail to demonstrate the positive attributes of a sound, long-term business are eliminated. At the idea generation stage, the team runs screens that help them to narrow a universe of several thousand companies to a manageable universe of stocks that meet certain criteria and are worthy of further analysis. As well as basic quantitative screening, the team draws upon wide-ranging internal and external inputs in order to hone the universe of stocks that are eligible for further research.
The aim of their fundamental research is to identify stocks that they believe offer good value (and therefore may be out-of-favour), have attributes of quality businesses and deliver a sustainable dividend stream. They frame their research around business and product factors, management factors and financial factors. There is a particular emphasis on management quality and capital allocation decisions, factors that they believe are critical in the delivery of superior returns to shareholders. They also look for a competitive edge and recurring demand for a product or service. With regard to valuation, they consider a range of measures but as a general rule, they do not invest in companies with a price/earnings ratio of more than 20. They expect buy candidates to be positively re-rated by the market in a two to three-year timeframe.
Formal documentation, including the fund prospectus and the KIID, should be sought directly from the asset manager. For ease of reference, a link to the ASSET MANAGER WEBSITE can be found above, as well as a link to the ASSET MANAGER FACTSHEET.
At The Adviser Centre, our primary aim is to support financial professionals in their fund selection and suitability work through independently-minded research, borne of decades of industry experience. Our process is framed by the fundamental concepts of “quality”, “value” and “utility”, through which we answer the key questions of why to invest in a fund, how it is likely to behave and how it can be deployed.
The Adviser Centre team members are some of the most experienced in the fund research industry. We can always look forward to robust and constructive discussions and we have great respect for their views and perspectives, which, given the breadth of their fund and market knowledge, come from an extremely well-informed position.
We have known and worked with the team for several years and we value their experience and the insights they provide to our own investment process. The service differentiates itself by its more focused nature and the information on their factsheets is useful in emphasising a fund’s key mandate, exposure and style biases, helping to explain the risk/return journey that our customers can expect.
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