This week, for Portfolio Adviser’s Monday Manager series, we speak to Richard Saldanha, co-portfolio manager of the $105m Global Equity Income and $116m Global Equity Endurance strategies.
He discusses why he moved into income investing, where he is seeing yield opportunities, and the skill in being able to shut out the noise.
The Monday Manager series covers fund managers that have worked on their fund for over three years, and where fund assets are over £100m.
Did you always want to be a fund manager?
I came from more of a science background, having a degree in chemistry but started taking more of an interest in investing when I was at university, investing small amounts in a handful of companies. The idea of being able to analyse and look at range of different industries and companies certainly piqued my interest – it’s a fascinating job in many ways when you think about how markets are constantly evolving and the challenge of building a portfolio that can offer robust returns over the long run.
See also: In the Hot Seat: Richard Saldanha, Aviva Investors
How long have you worked on global equity income strategies? What is it that appealed to you about this asset class?
I’ve been managing global equity income strategies for over 17 years – one of the areas that appealed to me the most is that income investing itself comes with a lot of discipline and rigour – as dividends are ultimately paid out of cash, it means you have to have a clear understanding and focus of companies that have the ability to grow their cashflows over time.
Income investing can ultimately can be very rewarding – if you look at long-term drivers of real total returns (so adjusting for inflation) across a range of equity markets globally, dividends and dividend growth are key drivers – but it requires patience to allow those income streams to compound.
What sets the Aviva Investors Global Equity Income fund apart from its peers?
Income investing in general has tending to focus a lot on traditional yielding sectors – so for instance energy, healthcare, telecoms, utilities – this has meant a lot of income funds have done a good job of being defensive and protecting capital in drawdowns but as a result haven’t been so good at capturing upside as well in periods when equity markets are rising. By focusing outside of this traditional framework, in sectors such as technology and industrials, we think we can construct a portfolio that is still able to offer strong downside protection but more importantly do a reasonable job of keeping pace in rising markets. It’s this asymmetry that we think is attractive for investors.
The good news from our perspective is the income landscape is rapidly evolving – the technology sector is probably the best example with increasing numbers of companies paying dividends. Alphabet and Meta notably announced they would start paying dividends a couple of years ago and now nearly two-thirds of companies (and close to 90% by market cap) of the US technology sector pays a dividend. So the opportunity set is certainly expanding, which allows income investors to participate in some of the key themes that are shaping markets.
See also: Square Mile’s fund selector: IA Global Equity Income
Where in the world are you currently finding the best yield opportunities? And which sectors?
From a yield standpoint, Europe and UK continue to offer attractive dividends and we are seeing healthy levels of cash generation, which should continue to support that. While headline yields on US stocks are relatively meagre in comparison, it certainly offers some attractive income growth opportunities which is also a key element of the portfolio. Asia and emerging markets have also been getting more focus as we see some exciting growth prospects and companies with good dividend track records.
In terms of sectors, we’re seeing some decent opportunities in consumer staples – the sector has lagged some of strong rally we’ve seen in equity markets over past few years but relative valuations are appealing and we do think there are some pockets of growth there, especially in companies that are more focused in emerging markets, where we have seen consumer demand in areas such as beauty and personal care has held up well relative to names with more developed markets exposure.
Tell us about some recent additions to the portfolio?
We recently initiated a position in Samsung Electronics – memory manufacturers such as Samsung, SK Hynix and Micron have seen elevated demand as a result of rising AI adoption whilst supply remains relatively constrained. This should lead to significant cash flow growth over the coming years which we think will translate into strong income growth as well.
We also added Zoetis to the portfolio last year – they are a leader when it comes to animal health, providing medicines, vaccines and also diagnostic testing that are used to treat pets as well as livestock. The company has an impressive track record of cash flow and income growth and we see good growth opportunities as they expand into other treatment areas such as oncology, cardiology and renal disease.
What tip would you give to a fund manager starting his career today?
Focus on what is in your control – we live in a world where there is a plethora of daily information and headlines; the real skill is being able to shut out the noise and actually focus on what matters – understanding businesses and fundamentals. Often the noise and short-term market volatility will create opportunities, but it does require taking a longer term view and having the courage of your convictions to ultimately succeed.
See also: Richard Saldanha returns to Aviva after one-month stint at RLAM
