While industry titan Woodford has sold down his exposure of BAT entirely and has expressed misgivings in the sector generally, Hutchins is adamant that the tobacco sector stands out for its quality players.
Shares in BAT currently make up the lion share of his portfolio, standing at 6.2% as of 30 June 2017.
Hutchins counts BAT and the major tobacco companies, Imperial Brands and Philip Morris which are also in his top 10 holdings, as some of the strongest from an equity income perspective.
Unlike other industries, tobacco has a “structure that is pretty unprecedented in that you have a concentrated industry where you have four global companies that all have a vested interest in being rational, with reasonably inelastic demand,” he explained.
And of the four global players, he thinks “BAT is the best global tobacco business now”.
In addition to its penetration in key emerging markets, Hutchins said the firm’s recent acquisition of competitor Reynolds has given it exposure to the best tobacco market of all – the US.
“The regulation in the US is quite light and cigarettes are still incredibly affordable in America compared to places like the UK or Australia.
“We still think the shares are quite cheap too,” he added.
When asked about a new Woodford favourite, the housebuilders, the UK equity income manager says he struggles to see the appeal.
“I’m not tempted by the housebuilders,” he stated.
“We’re toward the peak of the end of the housing cycle, which is why these companies are making ridiculous returns on capital right now.
“For me, I think the time to buy housebuilders is at the bottom of the cycle, not at the top.”
