Mark Dampier: Forget forecasts and find good fund managers
Saturday 03 December 2011
I highlighted the Trojan Income fund back in July and I make no apologies for returning to it. Since that date stock markets have been more volatile than I can remember in my 28 years in the investment industry, and the fund has coped admirably. The volatility is driven by macro-economic factors, particularly in the eurozone where politicians are failing to grapple with the current problems and remain a step behind the market. I cannot see this situation lasting much longer. It seems that either the eurozone will break up, at least in part, or that the ECB will come in as the buyer of last resort as has happened with central banks in the UK and US.
With all this going on, trying to forecast the market in any rational way has become harder than ever. In truth, the answer is to not forecast anything at all. Instead, concentrate on having the best fund managers looking after your money and have a decent percentage of your portfolio in cash ready to swoop if events suddenly take a turn for the worse. The trouble is holding cash is fraught with its own difficulties. You pay a high price for security with current rates a long way behind inflation, and as banks are still repairing themselves I do sometimes wonder how safe my cash really is. The first £85,000 in any one institution is guaranteed by the government, but the eurozone crisis is showing us that sovereign debt itself isn't as safe as once thought, turning the notion of risk on its head.
What we do know is that interest rates are not going up any time soon, and rates on cash deposits are likely to remain low. So despite the volatility of the equity market, exposure to good-quality high-yielding shares looks attractive. It is not difficult to envisage many of these top businesses being around and thriving in 10 or 20 years' time. In contrast, looking around the eurozone it is questionable whether some countries will still be part of it.
Trojan Income, managed by Francis Brooke, is full of good-quality, stable companies such as Vodafone, Shell, GlaxoSmithKline, AstraZeneca and Tesco. While these companies can be affected in the short term by macro-economic influences they look strong enough to withstand most problems. As well as larger firms there is exposure to lesser-known companies paying generous dividends such as Greggs, London & Stamford and AG Barr. There are also some robust overseas companies such as Nestlé and Coca Cola. Interestingly, the Trojan managers are positive on the prospects for gold, and the fund contains Newmont Mining and Newcrest Mining, two of the world's leading gold producers.
The fund is part of Troy Asset Management, which was set up in 2000 with a simple "total return" approach in mind. Their philosophy is that if you minimise losses during downturns, you don't have to regain as much when markets recover, so Troy funds all have a capital preservation mentality at their heart. Given its aim of producing a high level of income, this fund tends to stay more fully invested than the Troy Trojan fund, which I have previously written about. Even so, Francis Brooke often lets cash build up to significant levels if he believes valuations will become more attractive – an unusual tactic in this sector. Presently, cash accounts for 7 per cent of the portfolio, though it has been well into double figures at times. This attention to deploying cash at the right moments has helped generate the fund's excellent performance, as well as make it the least volatile in its sector since its launch in 2004.
Trojan Income has just the sort of portfolio that should be relatively resilient in an uncertain economic climate, and with a present yield of more than 4 per cent and an unbroken record of growing income payments since launch it is not a bad place to look for income. Hopefully, further dividend increases lie ahead for 2013. The fund should therefore appeal to a wide range of income-seeking investors, as well as those with a more cautious outlook looking to remain invested in the stock market through good-quality, dividend-paying companies.
Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.h-l.co.uk/independent
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