Fund in Focus: A fund with inflation-beating growth
This income-focused fund only invests in companies that produce reliable and growing dividends.
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.