The philosophy behind Kames Diversified Monthly Income is to provide ‘income in a low growth world’. According to Vincent McEntegart, who has led the management team since the fund’s inception in 2014: ‘The fund is based on a belief that the world will experience slower growth in the future.’ While not bearish or fearing a recession, he says, ‘on a broad level we believed that global growth was going to be slower due to all the debt that had been created as part of the financial crisis’.
With subdued economic growth ahead, says McEntegart, ‘any asset with a high income or yield should form an important part of people’s portfolios’. The fund aims to return 5 per cent from income, and 2 to 3 per cent from growth.
Since its inception it has achieved its objectives, providing ‘day one’ investors with an annual return of 8.6 per cent per year – 5.5 per cent from income and 3.1 per cent from capital return. The overall return of the fund since inception is 33.6 per cent.
BUY: Daimler AG (FWB: DAI)
This share, according to McEntegart, is undervalued right now. There’s ‘almost a perfect storm of bad things happening to the likes of Daimler’.
First, there’s the threat of the ‘car of tomorrow’ coming from disruptor businesses such as Tesla. There’s also the emissions scandal in which German car manufacturers such as Daimler have been implicated. At the same time, notes McEntegart, we are ‘five or six years into strong car sales’, but that’s now slowing down. ‘Sales are coming off the top’, he says; even in China sales have slowed.
All of this has had the effect of pushing down the share price of Daimler and other similar companies. German car manufacturers are ‘down 15 to 20 per cent, depending on where you start’, says McEntegart.
As a result, the Kames team became interested in them. He suspects that markets have over-reacted. ‘We don’t yet know,’ he says, ‘but our judgement is that the market has pushed the price a bit too far. The share provides an attractive yield of 4 per cent, but you’re also buying at a cheap price’.
First bought: February 2017 at €69.30 (£62). No additions or reductions to the position since initial purchase.
HOLD: Tritax Big Box (LSE: BBOX)
McEntegart says Tritax Big Box ‘is all about online retail’. This company, as the name suggests, provides warehouse storage for retailers moving to online sales. These businesses want ‘huge automated warehouses with robots running around taking stuff off shelves’: Tritax Big Box is a leader in this area.
It owns 35 large warehouses across the UK, which it rents out to retailers for leases of 25 years. Buying shares in the company is ‘a way of being invested in retail sector, but a part that will do better than the high street,’ he says. ‘We’ve owned this equity for quite some time and made a good return on it, and we still think there’s a bit more to go,’ he adds.
The team has bought Tritax shares several times over the past year, and it now accounts for 1.4 per cent of the fund. However, the reason why the company is a hold and not a buy is due to the nature of the business. ‘With something like Tritax – 35 big boxes with 25-year leases – there’s a limit to how far it can go up or down.’
First bought: July 2014 at £1.03. Topped up in November 2014, March and June 2015, November 2016 and April 2017.
SELL: Abertis Infraestructuras S.A. (BME:ABE)
Abertis is a Spanish company that operates toll roads. The fund purchased it in the summer of 2016 and sold it less than a year later for €16. The reason for the sale, however, was nothing to do with any underlying problems with the company, but due to the proposed merger between Abertis and the Italian company Atlantia, which also operates toll roads.
In April this year, Atlantia announced its intention to take over Abertis. As the company potentially being purchased, Abertis’ share price jumped while the company carrying out the takeover, Atlantia, saw its share price drop.
Spying an opportunity, the Kames team decided to sell its Abertis shares and switch to Atlantia. ‘If the deal doesn’t go ahead, Atlantia shares will come back to where they were,’ says McEntegart. ‘If it does go ahead, well we’ve been invested in Abertis because we think it is a good business and actually together they may be a better business.’
First bought: (Abertis) August 2016 at €13.80. Sold April 2017 at €16.00. First bought: (Atlantia) April 2017 at €22.90. No additions or sales since.
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