“You just have to be flexible at the moment. There are some income investors that just say I am structurally not going to invest in a specific sector, but we are trying to focus on where the value and cashflow is. If that is in resources, oil, banks or consumer staples, then let’s be open minded and not have preconceptions about the types of share investors should have in an income fund.”
Guilty pleasures
The fund typically holds around 35-45 stocks, with about 70% of those in companies that provide a good yield and strong, free cashflows. Roughly 20% of the fund is in so-called growth companies, where there is likely a lower dividend yield but an interesting business model. And, finally, 10% is allocated to turnaround stories.
However, the fund is currently more weighted to larger-cap, high, free cashflow companies that have perhaps been neglected during the past few years.
“It was easy to ignore HSBC when it was yielding 4% , trading on four times book and not demonstrating a lot of growth. It is now yielding 6%, trading at book value and showing progression,” says Wharrier.
“So, we quite like HSBC, which is a dangerous thing to admit as an active manager, most of which have performed well over the past few years just by being structurally underweight all of these large caps.
“I am not suggesting all the large caps are attractive, but there have been some pretty aggressive price movements in some of these companies.”
Indeed, it is the aggression of some of the moves in markets that serves to highlight the level of dispersion across the board, and particularly within the FTSE 100, which is another reason Wharrier is feeling bullish heading into 2016.
