Fund in Fo­cus: A fund with in­fla­tion-beat­ing growth

This in­come-fo­cused fund only in­vests in com­pa­nies that pro­duce re­li­able and grow­ing div­i­dends.

Finweek English Edition - - Contents - ed­i­to­rial@fin­week.co.za

Fund man­ager in­sights:

The Mar­riott Div­i­dend Growth Fund has been man­aged by the Mar­riott Unit Trust Man­age­ment Com­pany since 2000. The fund’s pri­mary ob­jec­tive is an ac­cept­able div­i­dend yield com­bined with long-term growth of in­come and cap­i­tal. The fund seeks out fun­da­men­tally sound, listed com­pa­nies that cur­rently pay div­i­dends and pos­sess the po­ten­tial for con­sis­tent and sus­tain­able div­i­dend growth in the fu­ture, ac­cord­ing to Lourens Coet­zee, an in­vest­ment pro­fes­sional at Mar­riott.

Coet­zee ex­plains that be­fore tak­ing on any new stocks, they must go through a strin­gent fil­ter­ing process. “We are one of the few as­set man­agers that does not fo­cus on out­per­for­mance. We have, in­stead, an in­vest­ment process that tries to iden­tify com­pa­nies we con­sider to be of the high­est qual­ity, with the abil­ity to sus­tain­ably grow their earn­ings, div­i­dends and prof­its over the next five to ten years.”

Hold­ings must have a min­i­mum mar­ket cap­i­tal­i­sa­tion of R5bn. The fund is not in­ter­ested in start-up com­pa­nies, but rather in en­ter­prises that are well-es­tab­lished and have proven busi­ness mod­els. “We are not try­ing to take risks with in­vestors’ money,” af­firms Coet­zee. A com­pany must have been able to pay a div­i­dend in the last three years and dis­play fu­ture growth in terms of div­i­dends.

Com­pa­nies are screened to as­sess whether they will do well un­der cur­rent eco­nomic con­di­tions. Com­pa­nies must also fall in an in­dus­try that gen­er­ates re­li­able earn­ings over time – which is one of the rea­sons the fund ex­cludes re­sources from its port­fo­lio. The fund also ex­cludes the tech sec­tor. It ap­proaches tech by tak­ing up stocks such as 3M and Honey­well – com­pa­nies that will ben­e­fit from the fourth in­dus­trial revo­lu­tion, but aren’t di­rectly in­volved in com­ing up with the bright new ideas and tech, ex­plains Coet­zee.

The fund re­mains of the view that ex­po­sure to the world’s finest div­i­dend pay­ers will serve in­vestors best in the years ahead and thus main­tain a 25% ex­po­sure to off­shore listed com­pa­nies such as John­son & John­son, Medtronic and Di­a­geo.

To­tal off­shore and rand-hedge stock ex­po­sure is ap­prox­i­mately 40%, which it deems ap­pro­pri­ate con­sid­er­ing the risk that ris­ing US in­ter­est rates pose to emerg­ing mar­kets. “Im­por­tantly, all the SA busi­nesses we own are of the high­est qual­ity with strong brands and pric­ing power – em­i­nently suit­able to a low-growth en­vi­ron­ment,” ac­cord­ing to Mar­riott. Why fin­week would con­sider adding it:

As at 31 Au­gust 2018, fund re­turns for one and ten years were 5.9% and 13.9% re­spec­tively, while the sec­tor av­er­age for both pe­ri­ods were 4.1% and 9.1%, re­spec­tively.

Coet­zee says the fund, man­aged ac­cord­ing to Mar­riott’s in­come-fo­cused in­vest­ment phi­los­o­phy, will get in­vestors the high­est-qual­ity se­cu­ri­ties in the mar­ket. As such, its per­for­mance is un­cor­re­lated to the mar­ket and per­forms very dif­fer­ently to most other gen­eral eq­uity funds. It en­hances the di­ver­si­fi­ca­tion of clients’ port­fo­lios with less volatil­ity and more con­sis­tent re­turns.

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