The FSA Spy market buzz – 22 November 2024
Dimensional excludes the Middle Kingdom; JP Morgan’s optimistic outlook; Household wealth is rocketing; Schroders is thinking about privates; Ninety One’s pithy AI; German woes and much more.
Investment approach
Both funds aim to achieve long-term capital growth while generating high and rising income in order to make attractive distributions to investors.
The manager of the BNY Mellon Global Equity Fund, Nick Clay, “looks for companies with high returns on invested capital and exhibiting growth, often with high barriers to entry around their business that allow them to maintain their status”, according to McDermott.
However, Clay is also prepared to extend his net wider.
“Companies reaching maturity and those that have been spending heavily on improving their businesses — which might have temporarily dampened returns — or in special situations, such as spin-offs, or those going through regulatory change” also appeal to him,” said McDermott.
But Clay is inflexible about his yield target.
“He will only take a position in a stock if yields 25% higher than [FTSE World] index,” said McDermott.
“This means he often looks at out-of-favour areas, although the companies need to be financially sustainable despite being spurned by other investors,” he said.
For instance, “Clay avoids companies which are borrowing to pay their dividends, those that are only paying special dividends and he doesn’t like companies which use cash for share buybacks”.
A dividend yield that drops below the index yield is a signal for Clay to sell a stock, whether or not the fall is a result of a rise in the share price or a reduction in the dividend pay-out.
In practice, the fund tends to be underweight US and Japan because they typically pay lower dividends, and overweight Europe, where companies are more generous with their dividends, according to McDermott.
Turning to the JPM Global Dividend Fund, McDermott noted that although managers Helge Skibeli and Sam Witherow also search for businesses “with good cash flow, sensible capital allocation and business models that can survive in the long-term, they will also look in growth industries.
“This means that the portfolio has a bit more of a growth tilt and will invest in less traditional income stocks as well as some more familiar names,” he said.
As a result, the fund typically has a higher weighting to the US (although still underweight its benchmark, the MSCI AC World index) and invests more in emerging markets, where it currently has a 10% exposure.
“So, you would expect this fund to keep up better in rising markets, but fall more than the BNY Mellon fund in declining markets,” said McDermott.
BNY Mellon |
JP Morgan |
|
Size |
$1.84bn |
$229m |
Inception |
2010 |
2009 |
Managers |
Nick Clay |
Helge Skibeli, Sam Witherow |
Three-year cumulative return |
35.09% |
38.44% |
Three-year annualised return |
10.37% |
11.29% |
Three-year annualised alpha |
2.20 |
1.48 |
Three-year annualised volatility |
9.82% |
10.91% |
Three-year information ratio |
0.11 |
0.47 |
Morningstar star rating |
**** |
**** |
FE Crown fund rating |
** |
*** |
OCF (clean share class) |
1.63% |
1.81% |
Geographical allocation:
Country/Region |
BNY Mellon % |
Country/Region |
JP Morgan % |
United States |
45.6 |
United States |
53.7 |
United Kingdom |
13.3 |
Eurozone |
17.7 |
Switzerland |
12.2 |
Europe ex-Euro |
7.6 |
France |
5.0 |
Asia – Developed |
4.5 |
Sweden |
4.5 |
United Kingdom |
3.92 |
Industrial allocation:
Sector |
BNY Mellon % |
Sector |
JP Morgan % |
Consumer goods |
24.8 |
Financials |
19.4 |
Technology |
19.1 |
Technology |
14.8 |
Healthcare |
15.4 |
Industrials |
14.0 |
Financials |
12.8 |
Healthcare |
11.2 |
Consumer services |
10.9 |
Communication services |
8.6 |
Top 5 holdings
BNY Mellon |
% weighting |
JP Morgan |
% weighting |
Qualcomm |
5.13 |
Microsoft |
3.35 |
Cisco Systems |
4.81 |
Comcast |
2.68 |
Pepsico |
3.49 |
Chevron |
2.68 |
Maxim Integrated Products |
3.14 |
United Health Group |
2.62 |
Bayer |
3.04 |
Next Era Energy |
2.62 |
Dimensional excludes the Middle Kingdom; JP Morgan’s optimistic outlook; Household wealth is rocketing; Schroders is thinking about privates; Ninety One’s pithy AI; German woes and much more.
Part of the Mark Allen Group.