Mark Dampier: Slater’s investment mix gives balance
Friday 14 June 2013
At the time of writing, the UK stock market, as measured by the FTSE All Share Index, has fallen around 7 per cent from the high it reached just a few weeks ago.
Given the extraordinary burst of performance seen over the past few months many investors were probably looking for an excuse to take some profits. Such a correction was therefore not a surprise and while some commentators have tried to herald the falls as the start of a new bear market, I think that this is an overreaction.
Investors need to consider that while bond yields have risen (and prices have fallen) they are still only at the level seen last Christmas. I do not see UK interest rates rising before the next general election, so while I am not an outright fan of bonds nor do I see their demise as imminent. What recent market movements do show though is how equities and bonds are interlinked. As bond yields have risen, equity markets have fallen.
In this environment I continue to believe a selection of high-quality, equity income funds can form the cornerstone of almost any portfolio. Providing investors are willing to take some risk with their capital the yields on offer are attractive, and there is the potential for income and capital growth over the long term.
A relatively new fund that recently caught my eye was Mark Slater’s MFM Slater Income Fund which launched in September 2011. It has an historic yield of 3.9 per cent while Mr Slater believes the prospective yield is 4.7 per cent.
Income investing is an interesting departure from the norm for Mr Slater, who also manages the growth-focused MFM Slater Growth and MFM Slater Recovery funds. On this fund he employs a strong income focus. He wants all the companies in which he invests to make a meaningful contribution to the fund’s yield.
Broadly speaking, he separates companies into three buckets. First there are growth stocks that also have a good yield. In this category he cites Cineworld, which has a 4.5 per cent yield, but also strong earnings growth of around 12 per cent a year. He has been impressed by the company’s use of the internet in getting to know its customers and spurring stronger growth than competitors.
Secondly, he highlights companies that are not growing their earnings rapidly, but where he sees material upside in a stronger economy. This category includes companies that might have experienced short-term difficulties, but where they have stabilised and are on the path to resolving them. BAE systems, for example, has seen earnings stagnate due to defence cutbacks, but Mr Slater believes with a yield of 5.3 per cent he is being paid to wait for the upside.
Finally, there are “dividend stalwarts” which offer slower, but reliable earnings growth with sustainable dividends. Examples in this category include GlaxoSmithKline and KCOM, the old Kingston Communications, where dividends are growing strongly.
Mr Slater believes holding a mix of companies in the above categories creates a balanced portfolio. He is agnostic as to company size and presently has around 28 per cent invested in FTSE 100 companies, a further 33 per cent in mid-sized firms in the FTSE 250 Index, and the remainder in smaller businesses. He tends to hold between 60 and 70 companies in the portfolio, but more importantly he is currently seeing plenty of opportunities.
Like any good fund manager, Mr Slater finds deciding when to sell his biggest challenge. When something goes wrong the decision tends to be easier. He sold Chemring after the company cut its dividend. With growth stocks that continue to perform well the decision is harder as the reward of share-price growth has to be set against a falling yield. He held Restaurant Group, for example, as the yield went from 4 per cent to 2.5 per cent on the back of strong share-price growth.
Mr Slater’s other two funds are near the bottom of the tables right now, but this is often the time they are worth taking a closer look at.
Funds go out of fashion at times, but managers who maintain a disciplined approach often bounce back.
In the past when Mr Slater’s funds have bounced back they have done so strongly.
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.hl.co.uk/independent
20 December 2012 09:07 AM
20 December 2012 09:10 AM
Fee-free, expert mortgage advice:
- Find the right mortgage for you
- Latest best-buy deals
- Mortgage calculators
- 1 Russell Brand accuses FOX News anchor Sean Hannity of terrorism after aggressive Israel-Gaza debate
- 2 Pope Francis issues top 10 tips for happiness
- 3 Disney heiress Abigail disowns her share of family profits in West Bank company
- 4 The secret report that helps Israel hide facts
- 5 Now diplomacy has failed, boycotting Israel might be the only way we can protect the people of Gaza
The secret report that helps Israel hide facts
Land for gas: Merkel and Putin discussed secret deal could end Ukraine crisis
Woman and two children killed by mob in riots over 'blasphemous' Facebook post in Pakistan
Richard Dawkins tweets: 'Date rape is bad, stranger rape is worse'
Putin is 'thuggish, dishonest and reckless', says British ambassador to US
Boozy, ignorant, intolerant, but very polite – Britain as others see us
- < Previous
- Next >
iJobs Money & Business
£20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...
£28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...
Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...
£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...
Day In a Page
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000