Citywire zurich the power of dividends

557 views

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
557
On SlideShare
0
From Embeds
0
Number of Embeds
200
Actions
Shares
0
Downloads
6
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Citywire zurich the power of dividends

  1. 1. The power of dividendsGlobal equity income investingMarch 2013Piers HillierHead of Overseas EquitiesKames Capital
  2. 2. Why an income strategy? y gyThe importance of dividends and dividend growth 8.0 5.7% 5.5% 3.7% 6.0 5.3% 4.9% 4.5% 4.0 40 2.7% 2 7% % 2.0 0.0 00 -2.0 -4.0 UK US France Germany Australia Canada Japan Dividend Yield Dividend growth Multiple expansion Total annualised returns Dividend income is a significant driver of long-term returnsSource: SG Cross Asset research, MSCI AC Real total returns since 1970. 2
  3. 3. Intellectual overconfidenceIs it different this time or will returns revert to mean?Source: Bloomberg & CIRA 3
  4. 4. Why an equity income strategy?The search for quality yield has reduced the opportunity in fixed incomeUS Inv Grade Bond Yield (%) and Non Fins Inv Grade Net Issuance - 25% Kames Capital Global Equity Income Strategy 10 700 Barclays Global High Yield Index 9 600 20% 8 7 500 15% $bn 6Yield US$ 400 10% 5 300 4 5% 3 200 2 0% 100 A/Aaa AA+/Aa1 A/Aa2 A-/Aa3 A+/A1 A/A2 A-/A3 /Baa1 /Baa2 /Baa3 BB+/Ba1 B/Ba2 B-/Ba3 B+/B1 B/B2 B-/B3 /Caa1 /Caa2 /Caa3 C/C D CC/Ca NR 1 AAA AA BB A B 0 0 C BBB+/ BBB/ BBB-/ AA BB CCC+/ CCC/ CCC-/ 2000200120022003200420052006 20072008200920102011 Non -fins Inv Grade Net Issuance (RHS) US Inv Grade Bond Yield (LHS) Credit rating Sustainable equity income offers yield and growth with credit qualitySource: Citi Research, Datastream, Dealogic. Net issuance figures are Europe + US. 4
  5. 5. The importance of real returnsUS real annual returns by decade (%)20% Equity cult begins here Equities15% Bonds10% 5% 0%-5% 1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s 2010s Total Equities only decade of real underperformance relative to bonds q y f p f follows equity bull markets - 1930’s and 2000’sSource: Global Financial Data, Factset, CIRA 5
  6. 6. Stock selection: What we’re looking for g Compounders Hoarders De-equitisers Consistent dividend Ability to substantially Equity for debt arbitrage growers raise payout ratios• Long term record of • Operational success • Scope for equity retiral annual growth in l th i leaves balance sheet l b l h t either through M&A or ith th h dividend per share firepower to materially share buybacks increase shareholder remunerations 6
  7. 7. Performance since inception pSince strategy launch return130120110100 90 80 Jun 12 2 Jul 12 2 Aug 12 2 Jan 11 Jun 11 May 11 Jul 11 Aug 11 Sep 11 Nov 11 Dec 11 Feb 12 2 Mar 12 2 Apr 11 1 Oct 11 1 2 Jan 12 Jan 13 3 May 12 2 Mar 11 1 Dec 10 0 1 Feb 11 Sep 12 2 Nov 12 2 Dec 12 2 Apr 12 2 Oct 12 2 Global Equity Income Strategy MSCI AC World 3 months 1 year Since launch (31/12/10) Global Equity Income Strategy 11.03% 19.84% 25.83% MSCI AC World 10.23% 14.93% 12.41% Geometric Relative G t i R l ti 0.73% 0 73% 4.27% 4 27% 11.94% 11 94%Source: Kames Capital, All returns in GBP gross of fees. 31 January 2013. Index source: LIM. The strategy is a carve-out of a balanced mandate and excludes cash. 7
  8. 8. Summary – harnessing the power of dividends y g p• Global approach maximises Average yield Realised yield opportunity set and helps pp y p 18% diversify risk 16% 14% Dividend yield• Targeting companies in the g g p 12% y Dividend Di id d sweet spot dividend sweet spot 10%• Focus on sustainability of y 8% dividend growth 6% 4%• Buy and hold p y philosophy p y 2% 0% <4% 5%-6% 7%-8% 9%-10% 15%-20% Dividend yield groupingSource: SG Cross Asset Research, Factset, I/B/E/S. Realised and forecast dividends. 8
  9. 9. Appendices pp 9
  10. 10. Investment process p 1. Screen 2. Analyse 3. Construct Narrow the u e se a o t e universe Develop conviction e e op co ct o Build an efficient po t o o u d a e c e t portfolioUniverse*U i * Ideas Id Conviction C i ti Portfolio P tf lic. 2500 STOCKS c. 250 STOCKS 20 PROPRIETARY 30-50 HOLDINGSwith >£1bn free float many of which we have Insight notes per month Stock-specific riskmarket cap already researched or >75% own Yield 150% of benchmark Portfolio Monitoring Fundamentals, Valuations Risk optimisation of Multi-Factor Screen and Technicals best ideas Global Equity Income process tailored for client requirements* Universe established based on a comprehensive understanding of client requirements – in this example constrained by free float size 10
  11. 11. The screening process gp• Kames Capital-designed proprietary model – Universe of c.2,500 stocks from 45 country indices (24 developed and 21 emerging markets) – Six screens capturing yield, growth, affordability, sustainability and quality Div Gth Dividend Net Debt / FY1 DY > FY2 DY > ROE > Name Sector Country FY0 - FY1 Cover > EBITDA < TOTAL (Max 6) 3% 3% 12% > 0% 1.3 13 2.5 25 CEZ CESKE ENERG. ZAVODY Utilities CZECH REPUBLIC        ROYAL DUTCH SHELL B Energy UNITED KINGDOM        GLAXOSMITHKLINE Health Care UNITED KINGDOM        NOKIAN RENKAAT Consumer Discretionary FINLAND        LOCKHEED MARTIN CORP Industrials UNITED STATES        BASF Materials GERMANY        NOVARTIS Health Care SWITZERLAND        MICROCHIP TECHNOLOGY Information Technology UNITED STATES        KEPPEL CORP Energy SINGAPORE        CHINA MOBILE Telecommunication Services HONG KONG        COMFORTDELGRO Industrials I d ti l SINGAPORE        PHILIP MORRIS INT Consumer Staples UNITED STATES        JOHNSON & JOHNSON Health Care UNITED STATES        BRITISH SKY BROADCASTING Consumer Discretionary UNITED KINGDOM        NESTLE Consumer Staples SWITZERLAND        MCDONALD S MCDONALDS CORP Consumer Discretionary UNITED STATES       Please note the snapshot of our proprietary screen is purely for illustration. 11
  12. 12. Finding the right companies g g p• Quantitative screening• Qualitative analysis - fundamentals, valuations and technical• Take a long-term view long term – Actively managed – Global diversification from relative concentration G f f – Aim for low portfolio turnover• Focus on sustainable and growing dividend income – Yield alone is insufficient 12
  13. 13. Portfolio construction Screen APT & Benchmark Algorithmics Analysis Initial portfolio (30-50 holdings) (30 50 Parameter – Target yield 150% of MSCI AC World – Optimise stock-specific risk stock specific Conviction C i ti Portfolio ideas – Limit unintended risks construction – Country and sector unconstrained Restrictions – Maximum stock size 10% GEIF – Market cap £1bn po t o o portfolio Optimising best ideas 13
  14. 14. Designed to meet client objectives g j Portfolio (%) MSCI AC World (%) (+/-) • Number of holdings 44North America 35.6 50.0 -14.4Europe 46.9 25.8 21.1 • Portfolio yield 4.3%Japan 1.8 7.4 -5.6Asia/Pacific Ex Japan 15.7 12.9 2.8 • Yield relative to referenceLatin America 0.0 2.8 -2.8Africa/Mid East 0.0 1.2 -1.2 index 147% 100.0 100 0 100.0 100 0 • Dividend growth 10%Energy 8.1 10.7 -2.5Consumer Staples 16.4 10.4 6.0Consumer Discretionary 12.7 12 7 10.7 10 7 2.0 20Telecommunication Services 8.0 4.2 3.8Utilities 0.0 3.4 -3.4Health Care 12.8 9.5 3.3Financials 20.5 21.4 -0.9Information Technology 4.9 11.8 -6.9Materials 3.5 7.4 -3.9Industrials 12.4 10.4 2.1Cash 0.47 0.0 0.5 100.00 100.0Source: Kames Capital, Citi Investment Research, FactSet. Unaudited data as at 31 January 2013. Div Yield is FY2, Div Gth is FY1/FY0. 14
  15. 15. Portfolio monitoring and oversight g g• Portfolio monitoring – Review discipline ̵ The quantitative screen is run every 2 weeks ̵ Weekly team meetings monitor existing positions and consider new ideas ̵ Monthly Investment Policy meeting frames asset allocation – Sell discipline ̵ An i ti A existing position f il any screening criteria, other th yield: GDF Suez iti fails i it i th than i ld S ̵ Stock recommendation change: AstraZeneca ̵ Geographical or industry tilts are altered: Emerson Electric – Risk management ̵ Continuous monitoring by Kames Capital’s Independent Portfolio Risk Management Group Ensuring compliance with client objectives 15
  16. 16. Important information pThis document is not intended for retail distribution and is directed only at investment professionals. It should not be distributed to, or relied uponby, private investors.All data in this presentation is sourced to Kames Capital unless otherwise stated. The views expressed and information provided is accurate atthe time of writing. fThe views expressed in this document represent our understanding of the current and historical positions of the market. They should not beinterpreted as a recommendation or advice.Past performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and isnot guaranteed. guaranteedAll yields are stated as at 31/01/2013. We calculate yields in compliance with the industry standard formula we are obliged to use which takes noaccount of potential future defaults. This may mean that, depending on future economic factors, the actual yield could be less than those shown.This document is accurate at the time of writing but can be subject to change without notification.Kames Capital Investment Company ( p p y (Ireland) p , is an umbrella type open-ended investment company with variable capital registered in the ) plc, yp p p y p gRepublic of Ireland (Company Number 442106), registered office at 25-28 North Wall Quay, International Financial Services Centre, Dublin 1.Board of Directors: Andrew Bell (UK), Mike Kirby (Ireland) and Bronwyn Wright (Ireland). Kames Capital Investment Company (Ireland) plc isregulated by the Central Bank of Ireland. Kames Capital is an Aegon Asset Management company and includes Kames Capital plc (CompanyNumber SC113505) and Kames Capital Management Limited (Company Number SC212159). Both are registered in Scotland and have theirregistered office at Kames House 3 Lochside Crescent Edinburgh EH12 9SA Kames Capital plc is authorised and regulated by the Financial House, Crescent, Edinburgh, 9SA.Services Authority, (FSA reference no: 144267). Kames Capital plc is the Investment Manager and Marketing Agent for Kames CapitalInvestment Company (Ireland) plc. Kames Capital Management Limited is an appointed representative of Scottish Equitable plc (CompanyNumber SC144517), an Aegon company, whose registered office is 1 Lochside Crescent, Edinburgh Park, Edinburgh, EH12 9SE (FSAreference no: 165548).FP ID: 2013/15458 16
  17. 17. Important information pFor Investors in SwitzerlandOn March 26th 2009, the Swiss Financial Market Supervisory Authority FINMA authorised the distribution to the public of the shares of KamesCapital Investment Company (Ireland) plc (the “Company”) in or from Switzerland in conformity with article 120 of the Federal Law on CollectiveInvestments of Capital dated June 23rd 2006. The C fC Company was authorised as a Foreign C Collective Investment SScheme. The articles of the fCompany, the Extract Prospectus for Switzerland, the Key Investor Information (Swiss edition), the annual and semi annual Report forSwitzerland of the Company can be obtained free of charge on our website www.kamescapital.com or from the Representative in Switzerland,BGG Banque Genevoise De Gestion, 15, Rue Toepffer, 1206 Geneva, Switzerland, (Tel : + 41 22 3479040; Fax: + 41 22 3479327).For Investors in LuxembourgKames Capital Investment Company (Ireland) plc is a UCITS collective investment scheme registered in Luxembourg by the Commission deSurveillance du Secteur Financier. The Prospectus, Supplement and Key Investor Information of Kames Capital Investment Company (Ireland)plc are available from CACEIS Bank Luxembourg 5, allée Scheffer, L-2520 Luxembourg.For Investors in the NetherlandsKames Capital Investment Company (Ireland) plc is a UCITS collective investment scheme registered in the Netherlands by the NetherlandsAuthority for Financial Markets in Amsterdam. The Prospectus, Supplement and Key Investor Information of Kames Capital Investment Company(Ireland) l(I l d) plc are available f il bl free of charge f f h from our website www.kamescapital.com (D t h edition of th K I b it k it l (Dutch diti f the Key Investor I f t Information only). ti l )The Global Equity Income Fund is available in UK, Channel Islands, Ireland, Netherlands, Switzerland and Luxembourg.FP ID: 2013/15458 17

×