Diversification is one key rule of investment that most savvy investors follow. Looking at the growth of multi-asset funds is one example of how this tip has been followed but looking at the assets held in Miton’s Multi Cap Income Fund is yet further proof that whatever your investment goal, a diversified portfolio is key. Even if that goal is income.
The UK may be unloved as an equities market due to Brexit uncertainties at the moment but that has led to some fantastic entry points from a valuation point of view.
Gervais Williams, manager of the fund, does not concentrate on the so-called dividend heroes that make up many equity income funds. He says that the principle purpose of the fund is to generate growing income and “if we think we can do that better than most other funds we’d like to think it will mean better returns long term alongside a more wide ranging portfolio”.
It may be some of the names within the funds top holdings that have investors a tad bewildered but Mr Williams is a small cap specialist and being listed on the AIM market doesn’t translate to not paying dividends, far from it. The fund’s top holding, AIM-listed Diversified Gas & Oil operates in the mature oil fields in the US, generating lots of cash growing their dividend ‘beautifully’ and Mr Williams adds “it doesn’t have to be more complicated than that!’.
Given the Brexit shambles that seems never ending, Mr Williams is convinced that there will be a solution and this should help some of his UK focused holdings at the expense of the FTSE 100 mega caps that had benefited from sterling’s huge decline in value aiding these companies earning in their revenue in dollars.
The fund’s holdings vary massively, from FTSE 100 stalwarts like Legal & General to AIM listed Park Group but it’s their ability to grow their dividend progressively which is key to the funds success.
In terms of where to look for future income paying stocks, the filters applied include where are there prospects for future growth? Do unexpected cost increases get passed on to the customer and crucially does the management team make decisions that will build real intrinsic value? When these and other points are ticked off, the team will have a discussion with the company.
An example of happenstance with Miton comes with its holding of BioVentrix. Mr Williams happened to be sitting next to the management of the company at a conference and got talking. Mr Wiliams liked what he heard and the company has grown its dividend payout by around six times since 2014. However the team meet companies constantly and this was a rare occurrence.
With holdings of 149 some may worry that this is not high conviction and maybe replicating its index. However the fund has a high active share so the latter point is mute and with the abundance of AIM listed stocks, given the political uncertainty at the moment, means if one company gets into trouble there are plenty of others to fill the income yielding gap.
One of the reasons that Mr Williams holds companies such as Strix Group is that they have large barriers to entry to entry or ‘moats’. The company is a leader in kettle controls and while it may not sound the sexiest stock in the world, it’s a global leader and unlikely to lose its place at the top of the mantle.
Mr Williams has an interesting take on the growth of populism that has been a mainstay of recent political developments. He says that productivity has been flatlining for over a decade and investing in equities is supposed to put cash to work which will in turn generate productivity in the form of growth and dividends.
However, due to loose monetary policy such as quantitative easing and lack of wage growth “people get fed up, not because they hate Europeans but because they want change”.
This informs his stock picking as he chooses companies that take advantage of others as well as having their own balance sheet strengths.
Miton Multi Cap Income Fund (GB00B3SRD718)
Fund Size £1.3 billion
Fee 1.56 percent
Five year annualised return 5.6 percent
Annual yield 4.7%
Top Holdings Diversified gas and oil, Zotefoams, SafeCharge, Charles Taylor
Net asset Value Growth
To read more about this fund, click here
