Quilter Investors manager Helen Bradshaw has described the UK as a “complete shambles” as she unveils her debut fund picks for the duo of multi-asset income portfolios she launched last month.
The Monthly Income portfolio, which is lower risk while targeting a higher level of income, and the Monthly Income and Growth portfolio, which is higher risk with a lower level of expected income, both launched on 26 June.
Bradshaw (pictured), who joined Quilter from Janus Henderson in February this year, says she is seeking sustainable income in the UK.
The multi-asset portfolios hold Investec UK Equity Income, managed by Blake Hutchins, and a segregated mandate run by Adrian Frost at Artemis.
“There is a blend of different types of funds we’re looking at, whether we have open ended, close ended, segregated mandates or passives,” she said. “An active manager that I quite like in the UK is the Investec UK Equity Income fund, run by Blake. I like his approach of looking for income and looking for the sustainability of the income which is quite important in the current environment when there are quite a few headwinds to the UK economy.
“You focus a lot of time on the cashflow and whether companies generate enough cash flow to support and grow that dividend over time – I think that approach is quite important.”
She listed Adrian Frost from Artemis as another fund manager she favours in the current UK environment. “We can access this through the Quilter Investors mandate and again they’ve got that focus on the cash generation and being able to support and grow that dividend.”
‘The UK is a complete shambles’
Discussing Brexit, she says: “I think the whole situation in the UK is a complete shambles. It has been since pre referendum, and even if you predicted the outcome of the referendum – which very few people did – you would have also probably got how markets reacted to that wrong as well.”
Anticipating the outcome if Jeremy Corbyn got voted prime minister, she said: “You may see things like government bond yields rising but on the other hand, I think markets would welcome some sort of clarity as to the direction that things are going.
“Who knows whether Boris Johnson can provide that but some movement at least into what the Brexit negotiations will materialise in to is what I think would be quite helpful.”
She says there are still some opportunities in the UK. “The yield and the market is quite attractive, 4.4 on the FTSE 100, so there is a big premium yield versus Bank of England’s base rate or government bonds, but you do need to be mindful because if you look back, there are a lot of companies with high dividend but I wouldn’t say they are all necessarily sustainable, such as Vodafone which we saw the fallout from that earlier in the year.”
She said some stocks are trading at very cheap valuations historically. “At the other end, you’ve got the S&P which today is over 3,000 for the first time ever,” she said.
“This is like the worst loved bull run on record where no one’s bought in to it, we’re all anxious and on edge thinking that at any point now, it’s going to end but it continues to go. But I do think underneath the surface, the difference between the expensive and cheap stocks is just getting more and more stark.”
EM surprises income investors
Looking further afield, Bradshaw lists emerging markets (EM) as an area income investors have historically not been drawn to, but where there are opportunities.
“Emerging markets I think many people would always view as a growth market, not necessarily a place you would look to for income. But as the economies have developed in those regions, they have become more shareholder friendly, increased corporate governance, and 90% of them are actually paying a dividend which I think is quite surprising.”
The Wells Fargo Worldwide EM Equity Income fund is a fund she holds for exposure to this area, run by Alison Shimada and Elaine Tse.
“This is an actively managed fund where they look to invest in companies with good corporate governance, a strong balance sheet but actually paying a premium dividend yield because there are a lot of opportunities for income in EM,” she says. “You’re also getting different growth drivers as well which you’re not necessarily getting if you were just to look somewhere like the UK.”
