‘We’ve bought insurance to cover another crash’

Income seeker Gervais Williams tells Harry Brennan why the next market fall will be worse than last year’s and why his fund will still make a profit

When the London stock market tumbled by 35pc last year as the pandemic struck, it triggered an insurance policy payout that allowed the £1.1bn Premier Miton UK Multi Cap Income fund to flourish while others floundered.

Now, after markets have bounced back, the spectre of inflation looms and the fund’s manager, Gervais Williams, has taken out cover against falling stocks once again.

He tells Telegraph Money why another crash would be worse this time round and why he has mixed feelings about the looming takeover of one of his best-performing stocks.

The manager also identifies a potentially lucrative income investment he thinks rivals have overlooked.

WHO IS THE FUND FOR? Those who want a good and growing income. We are also an option for investors who want compounded returns by reinvesting income for growth.

HOW DO YOU PICK STOCKS? We pick stocks that generate a growing and plentiful amount of cash so they can increase dividends.

The fund is “multi cap”, which means we invest in companies of all sizes. We do own some mainstream FTSE 100 shares, but they are in the minority. More of the fund’s money is held in smaller companies that are part of the junior Alternative Investment Market.

Companies that grow their income well typically tend to benefit from their share prices increasing too. We sell shares when they are no longer providing a level of income we are happy with.

HOW MUCH HAVE DIVIDEND CUTS HURT THE FUND? Our income fell by around 17pc when the crisis hit – much less than the 43pc slump in dividends across the stock market last year. By May this year our income had almost completely recovered as dividends from our companies bounced back.

DO YOU FEAR ANOTHER CRASH? In the past three weeks we have taken out an insurance policy known as a “put option”. This means that if the FTSE 100 goes down, the value of our options goes up. This is the first time we have used them for around 15 months. We last used them to insure against falls in the FTSE 100 during the pandemic, which provided us with a good supply of cash as markets were falling.

The good thing about this is that you can do something very positive in a bad situation by buying up stocks with this extra cash while prices are low. We have put the insurance policy back in place because of fears about inflation. It is also cheap: the price of options has fallen as shares have recovered.

WHY ARE YOU WORRIED ABOUT INFLATION? Stock markets recovered last year because central banks responded to Covid’s impact on the global economy by launching huge stimulus efforts. But this is much harder to do when inflation is high. If stocks were to fall again, policymakers would find it difficult to engineer a recovery as strong as last year’s. In short, markets would be depressed for longer.

WHAT DID YOU BUY WHEN STOCKS FELL LAST YEAR? We bought into companies whose share prices had collapsed, such as Intermediate Capital, which invests in private equity. We also bought shares in SPF Pensions, a pension administration firm, and DWF Group, a legal business.

ARE YOU BACKING A MORRISONS TAKEOVER? Morrisons has been one of our best performers recently and is a very stable business. The supermarket chain has been generating good amounts of cash for years, is very conservatively financed and owns most of its stores.

Despite this, its share price had barely moved until very recently. Nevertheless, we have been delighted to hold it because of its growing dividends. So we would rather the company were not taken over, even though the bids have boosted the share price.

WHAT HAVE BEEN YOUR BEST AND WORST INVESTMENTS? Litigation funder Burford Capital was one of the best. It was very small when we bought it and was growing its dividend before the share price went mad. We made 20 times our money when we sold our stake.

The lender Amigo Loans was our worst. We bought at around £ 1.10 a share before selling about three years ago at 20p.

DO YOU HAVE YOUR OWN MONEY IN THE FUND? Yes, I tend to invest only in my own funds.

WHAT WOULD YOU HAVE BEEN IF NOT A MONEY MANAGER? I was previously a marine and structural engineer.