M&G North American Dividend fund page

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M&G North American Dividend

IA Sector:

North America

Asset Manager:

M&G

Asset Manager Website:

www.mandg.co.uk

Asset Manager Factsheet:

A high conviction North American equity fund that is underpinned by the search for dividend growth. The approach is based upon identifying stocks with dividend growth prospects, rather than prioritising a high initial yield. Within its sector, the fund features in our 'Larger-Cap, Income and Growth' category.

Opinion, Characteristics & Utility

Opinion

This Recommended fund has in, John Weavers, a passionate manager who stresses the importance of dividend growth, not only as a key driver of market returns, but also in encouraging good corporate governance.
The manager is an established member of M&G’s experienced equity income team and has been instrumental in helping the firm to build its equity income franchise, headed by Stuart Rhodes.
He is pro-active in adjusting the allocations to defensive, cyclical and high-growth stocks according to market valuations, while retaining a core of structural growth opportunities.

Characteristics & Utility

The manager is focused on delivering attractive total returns through the growth of income and capital. The investment process incorporates enough flexibility for the fund to capitalise upon opportunities that are presented in a range of market conditions.
The fund is distinguished from other US income funds, which tend to have a structural value bias. This is because most higher yielding stocks tend to be found in the more traditional value sectors. However, the manager’s focus upon dividend growth, as opposed to simply dividend yield, helps in the curation of a more balanced portfolio.
The fund is unlikely to participate fully to the upside when markets are richly priced, or when low quality stocks are leading the market.
With its balanced approach to income investing, the fund can be used as a mainstay US equity holding.

Risk Commentary

The fund’s KIID Synthetic Risk and Reward Indicator (SRRI) is 6. 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 6 means the fund’s historic volatility is between 15% and 25%.

Our analysis indicates that the fund’s five-year standard deviation is broadly in keeping with the mainstream US equity index. However, investors should expect some variability in behaviour of the fund compared to the index, given its active share characteristics and distinctive approach. Different share classes could have differing SRRI scores.

Description

Investment Team

The fund is managed by John Weavers and he is supported by Stuart Rhodes as deputy manager. Mr Weavers joined M&G in 2007 and is a member of the M&G Income team within M&G's equities division, headed by Stuart Rhodes. They work closely with their colleagues in the team, sharing a common approach which is focused upon dividend growth.

Investment Philosophy

The team's fundamental belief is that investing in companies that are growing their dividends is a successful strategy for long-term investment. Their view is that dividends provide the ultimate sign of a company's capital discipline and commitment to shareholder value. Furthermore, they believe that a progressive dividend policy helps a company to improve. This is distinct from a pure dividend yield approach, as, in their view, a high yield is not an automatic sign of value.

Portfolio Construction & Risk Controls

The portfolio is relatively concentrated, usually comprising around 40 to 50 holdings, with the aim of ensuring healthy competition for capital. A typical holding has a weighting of 1-4% in the portfolio. The presence of three categories of stocks promotes diversification and is helpful in responding to changing opportunities and market conditions. The Equity Risk team works closely with the manager, monitoring a wide range of risks and assessing the impact of new portfolio candidates.

Investment Process

The bottom-up research process reflects the manager's belief in the potential performance from companies with a return on capital in excess of the cost of capital and committed to the discipline of paying and growing a dividend. Therefore, an initial screen is applied to highlight liquid, dividend-paying companies. Further research is undertaken to identify companies that can grow their dividends over the long term, with a special focus upon capital discipline, return on invested capital and long-term growth potential. Confidence in a company's attitude to dividends is paramount and one-to-one meetings take place with this in mind. Valuation is also a key element of the process as, while the manager is seeking long-term growth potential, he is also seeking a good entry point. All investment ideas are discussed within the income team and more broadly across the equities floor to capture different insights.

This process yields around 200 stocks, from which the portfolio is built. In order to build balance into the portfolio and mitigate the defensive bias that is typically a feature of pure dividend strategies, he features ideas from three categories: "Quality", the core of the portfolio at 40-50%, incorporates companies with strong market positions, stable cash flows and growth opportunities; "Assets", at 25-35%, features cyclical companies that have good capital discipline and a strong asset base; "Rapid Growth", at 20-30%, includes companies that are growing rapidly and generating solid cashflow and a rising income stream.

Key Fund Facts

Inception Date:

28 April 2015

Manager(s) (Since):

John Weavers (Apr 15)

Fund Domicile:

United Kingdom

Base Currency:

£ Sterling

Fund Benchmark:

S&P 500

IA Sector:

North America

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.