1. 14
investmentweek.co.uk 16 February 2015
which calls have really stood out
for you?
What has worked for us has been holding
low volatility stocks with quality yield.
Certainty of earnings has been a major
tailwind. We are looking for companies
on attractive valuations, with resilient
franchises, and understandable business
models. Our significant allocation to
the healthcare sector, which has been
consistently 20% to 25% of net asset value,
has served us well. The market has clearly
DanRobertstalkscurrencyrisk,earningsvisibility,andthethreatofdividendcutsintheoilsector
‘Oilmajorswouldhavetocut
dividendsevenat$100/bbl’
FundManagerFocus
DanRoberts,
FidelityGlobalDividendfund
By Hannah Smith
Twitter: @hannah_fran_
Last year was a difficult year for global
funds, many of which suffered due to an
overweight to struggling commodities and
an underweight to the outperforming US
equity market.
The £114m Fidelity Global Dividend
fund has managed to buck the trend
despite low exposure to the US and a
trickier global environment for yield
hunters.
Launched in early 2012, the portfolio
has returned 53% over the three years to 6
February against a 40% return from the IA
Global Equity Income sector, according to
FE, placing it at the top of its peer group.
Here, manager Dan Roberts explains
why he does not hedge out currency
risk on the portfolio, and how a hefty
allocation to healthcare, and the ‘certainty
of earnings’ theme have helped drive
performance over the life
of the fund.
The fund has just marked its three-
year anniversary. Over that period,
INNOVATIVE THINKING
DESIGNED TO GENERATE
POSITIVE OUTCOMES.
ForProfessionalClientsonly.Nottoberelieduponbyretailclients.Thisisnotintendedasinvestmentadvice.Thevalueofinvestmentscanfallaswellasrisesoyoumaygetbacklessthanyouoriginallyinvested.IssuedintheUKbyBNYMellonInvestment
Management EMEA Limited,BNY Mellon Centre,160 Queen Victoria Street,London EC4V 4LA.Registered in England No.1118580.Authorised and regulated by the Financial Conduct Authority.Issued as at 24/11/2014.T1772 CP14008-24-02-2015(3M)
Continued on page 17
CV
2011
Worked at Eden Financial for
two months, before joining
Fidelity, taking on the Global
Dividend fund at launch in
2012.
2009
Ran income funds at
Gartmore.
2003
Equity income portfolio
manager at Aviva.
2002
Portfolio manager at Invesco.
2001
Equity analyst at MG.
014-017_IW_1602.indd 14 11/02/2015 16:55
2. 17FundManagerFocus
DanRoberts,
FidelityGlobalDividendfund
16 February 2015 investmentweek.co.uk
Formorefundmanagerinterviews,goto:
investmentweek.co.uk/tag/fund-manager-focus-
archive
put in a good performance since the fund
launched, but it has not been led by the
cyclical sectors, it has been led by the more
defensive sectors.
The re-rating of the broader market
has been phenomenal. Earnings in the
MSCI World index have gone nowhere –
earnings per share is on low single digits –
so it is surprising that the market has done
so well, delivering a 40% total return over
the last three years.
That has all come through re-rating.
Yields are falling despite nothing much
changing in businesses. The sweet spot
for quality yield was 4.5% when the fund
launched, and it is now 3%. People can’t
find income elsewhere, so a rising market
gives them confidence and it feeds off itself.
You noted there has been
widespread repricing on certainty
of company earnings, but in the last
couple of yearssome companies
were punished harshly for earnings
misses. Will these two trends
polarise the market this year?
Quarterly updates do sometimes get a
meaningful reaction on the day, but I
would not set too much store by that. The
certainty of earnings theme has been more
powerful. We have also seen some themes
unwinding, such as emerging markets.
Those stocks looked quite richly valued to
me. We have no direct emerging market
exposure in the fund now, although it has
been high single digits before. We tend to
hold stocks which sell into these markets,
rather than EM companies themselves.
Currency moves are having an
increasing impact on funds as
central bankssuch as theSwiss
National Bank and the ECB interfere
in currency markets. How much of
a concern is this for you, and do you
hedge currency risk in the portfolio?
We do not hedge because we think
diversification of currencies is a positive
for the strategy. There are difficulties in
how to hedge – for example, if you buy
Roche and hedge the Swiss franc, its
revenues come from outside Switzerland
so you would not have got any benefit
from the appreciation of the currency.
You would have to do it by end-market
exposure, and this would be very
complicated – do you do it by revenues,
or domicile?
We use the dollar as a base currency.
[The strength of the dollar] has been a
headwind for income strategies. We have
been consistently 15% or so underweight
the US, which has outperformed 20%,
but our stock selection has allowed us to
overcome that.
How much of a theme has MA been
for you recently?
We hold predominantly large caps so
they tend not to be takeover targets. We
have some AstraZeneca but obviously
that [proposed takeover by Pfizer] did
not go through. We held AbbVie at the
time it approached Shire. I used to own
[medical device maker] Zimmer but I sold
it because I did not like the price it paid
for Biomet’s assets – the takeover took it
from having no gearing to a reasonable
amount of debt. So we take MA on a case
by case basis.
Has the fundsuffered from running
an underweight to the US at a time
when equity markets have hit record
highs?
Some 30% of the fund is in the US, and
will probably remain there. Being long US
equities is very much a consensus trade
right now. Some stocks have benefited by
default because of flows – for example,
we bought 3M on a 7% free cashflow
yield, with stable margins. Nothing has
changed in the business but now it is on
a 4.5% free cashflow yield, which shows
a re-rating. You have to react to where
the value emerges. People say the US is
the most expensive market on a P/E basis,
but that hides a lot of disparity in the
market. For example, some tech is trading
on very low valuations, and some ‘sexy’
tech is trading on 18 times revenues. I own
Microsoft, although I own a lot less now. It
fell 10% after a trading update last month,
but I think the reaction on the day was
overdone.
How much of a threat to dividends is
the falling oil price?
We have benefited from having low
exposure to resources. Only 3% or 4% of
the fund’s NAV is in oil stocks and there
are no miners. Even with oil at $80 or $90,
some of these dividends would not be
covered. If you look at Statoil, Shell, and
Total, the market was happy that they
had promised to cut capex to cover their
dividends. They have had to sell assets
and increase gearing to cover it, and that
was with oil at $80. Then it dropped below
$50. Inevitably, if it stays at this level,
companies will have to cut their dividends.
The contrarian in me wants to get in to the
sector, but there has to be an underlying
investment case, and at the moment
there is not. The impact of oil majors
cutting their dividends would be greater
in the UK than elsewhere [because of the
composition of the FTSE 100] but, even in
the worst scenario, I should be able to keep
growing dividends.
Threestocksforthenextthreeyears
Reed Elsevier
Aprofessionalpublisher,thisisahighreturnbusinesswithvisible,recurringrevenuestreamsandastrong
managementteam.Negativesentimentpersistedafterapoorlytimedrightsissuein2009,makingthestock
availableonanattractivevaluation.
Yield at time of purchase:4.5%
Total return since purchase,in GBP:120%
Astellas Pharmaceuticals
AJapanesepharmaceuticalcompanythathassolidcorebusinessesinurologyandtransplantation,
alongsideanewfranchiseinoncology.Astrongbalancesheetandacommitmenttoaprogressivedividend
areaddedattractions.
Yield at time of purchase:4%
Total return since purchase,in GBP:97%
Kimberly-Clark
Kimberly-Clarkisaconsumerstaplebusinessthatprovideshealthandhygieneproductssuchasnappies
andtissuestoabroadcustomerbase. Atthetimeourinvestmentwasmade,itwaspricedatasignificant
discounttocomparableglobalbusinesses,butthemanagementteamhasaddedgreatvaluebyallocating
capitalwisely.
Yield at time of purchase:4%
Total return since purchase,in GBP:90%
Source:Fidelity
6 February 2012 – 6 February 2015. Source: FE
Feb 2012 Feb 2013 Feb 2014 Feb 2015
Fidelity Global Dividend
MSCI World
IA Global Equity Income
-10
0
10
20
30
40
50
60
%
FidelityGlobalDividendvsMSCIWorldvssectoraverage
Yields are
falling despite
nothing much
changing in
businesses.
Thesweetspot
for quality
yield was 4.5%
when the fund
launched, and
it is now 3%
014-017_IW_1602.indd 17 11/02/2015 16:55
![17FundManagerFocus
DanRoberts,
FidelityGlobalDividendfund
16 February 2015 investmentweek.co.uk
Formorefundmanagerinterviews,goto:
investmentweek.co.uk/tag/fund-manager-focus-
archive
put in a good performance since the fund
launched, but it has not been led by the
cyclical sectors, it has been led by the more
defensive sectors.
The re-rating of the broader market
has been phenomenal. Earnings in the
MSCI World index have gone nowhere –
earnings per share is on low single digits –
so it is surprising that the market has done
so well, delivering a 40% total return over
the last three years.
That has all come through re-rating.
Yields are falling despite nothing much
changing in businesses. The sweet spot
for quality yield was 4.5% when the fund
launched, and it is now 3%. People can’t
find income elsewhere, so a rising market
gives them confidence and it feeds off itself.
You noted there has been
widespread repricing on certainty
of company earnings, but in the last
couple of yearssome companies
were punished harshly for earnings
misses. Will these two trends
polarise the market this year?
Quarterly updates do sometimes get a
meaningful reaction on the day, but I
would not set too much store by that. The
certainty of earnings theme has been more
powerful. We have also seen some themes
unwinding, such as emerging markets.
Those stocks looked quite richly valued to
me. We have no direct emerging market
exposure in the fund now, although it has
been high single digits before. We tend to
hold stocks which sell into these markets,
rather than EM companies themselves.
Currency moves are having an
increasing impact on funds as
central bankssuch as theSwiss
National Bank and the ECB interfere
in currency markets. How much of
a concern is this for you, and do you
hedge currency risk in the portfolio?
We do not hedge because we think
diversification of currencies is a positive
for the strategy. There are difficulties in
how to hedge – for example, if you buy
Roche and hedge the Swiss franc, its
revenues come from outside Switzerland
so you would not have got any benefit
from the appreciation of the currency.
You would have to do it by end-market
exposure, and this would be very
complicated – do you do it by revenues,
or domicile?
We use the dollar as a base currency.
[The strength of the dollar] has been a
headwind for income strategies. We have
been consistently 15% or so underweight
the US, which has outperformed 20%,
but our stock selection has allowed us to
overcome that.
How much of a theme has MA been
for you recently?
We hold predominantly large caps so
they tend not to be takeover targets. We
have some AstraZeneca but obviously
that [proposed takeover by Pfizer] did
not go through. We held AbbVie at the
time it approached Shire. I used to own
[medical device maker] Zimmer but I sold
it because I did not like the price it paid
for Biomet’s assets – the takeover took it
from having no gearing to a reasonable
amount of debt. So we take MA on a case
by case basis.
Has the fundsuffered from running
an underweight to the US at a time
when equity markets have hit record
highs?
Some 30% of the fund is in the US, and
will probably remain there. Being long US
equities is very much a consensus trade
right now. Some stocks have benefited by
default because of flows – for example,
we bought 3M on a 7% free cashflow
yield, with stable margins. Nothing has
changed in the business but now it is on
a 4.5% free cashflow yield, which shows
a re-rating. You have to react to where
the value emerges. People say the US is
the most expensive market on a P/E basis,
but that hides a lot of disparity in the
market. For example, some tech is trading
on very low valuations, and some ‘sexy’
tech is trading on 18 times revenues. I own
Microsoft, although I own a lot less now. It
fell 10% after a trading update last month,
but I think the reaction on the day was
overdone.
How much of a threat to dividends is
the falling oil price?
We have benefited from having low
exposure to resources. Only 3% or 4% of
the fund’s NAV is in oil stocks and there
are no miners. Even with oil at $80 or $90,
some of these dividends would not be
covered. If you look at Statoil, Shell, and
Total, the market was happy that they
had promised to cut capex to cover their
dividends. They have had to sell assets
and increase gearing to cover it, and that
was with oil at $80. Then it dropped below
$50. Inevitably, if it stays at this level,
companies will have to cut their dividends.
The contrarian in me wants to get in to the
sector, but there has to be an underlying
investment case, and at the moment
there is not. The impact of oil majors
cutting their dividends would be greater
in the UK than elsewhere [because of the
composition of the FTSE 100] but, even in
the worst scenario, I should be able to keep
growing dividends.
Threestocksforthenextthreeyears
Reed Elsevier
Aprofessionalpublisher,thisisahighreturnbusinesswithvisible,recurringrevenuestreamsandastrong
managementteam.Negativesentimentpersistedafterapoorlytimedrightsissuein2009,makingthestock
availableonanattractivevaluation.
Yield at time of purchase:4.5%
Total return since purchase,in GBP:120%
Astellas Pharmaceuticals
AJapanesepharmaceuticalcompanythathassolidcorebusinessesinurologyandtransplantation,
alongsideanewfranchiseinoncology.Astrongbalancesheetandacommitmenttoaprogressivedividend
areaddedattractions.
Yield at time of purchase:4%
Total return since purchase,in GBP:97%
Kimberly-Clark
Kimberly-Clarkisaconsumerstaplebusinessthatprovideshealthandhygieneproductssuchasnappies
andtissuestoabroadcustomerbase. Atthetimeourinvestmentwasmade,itwaspricedatasignificant
discounttocomparableglobalbusinesses,butthemanagementteamhasaddedgreatvaluebyallocating
capitalwisely.
Yield at time of purchase:4%
Total return since purchase,in GBP:90%
Source:Fidelity
6 February 2012 – 6 February 2015. Source: FE
Feb 2012 Feb 2013 Feb 2014 Feb 2015
Fidelity Global Dividend
MSCI World
IA Global Equity Income
-10
0
10
20
30
40
50
60
%
FidelityGlobalDividendvsMSCIWorldvssectoraverage
Yields are
falling despite
nothing much
changing in
businesses.
Thesweetspot
for quality
yield was 4.5%
when the fund
launched, and
it is now 3%
014-017_IW_1602.indd 17 11/02/2015 16:55](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)