Peters says the portfolio can be expected to lag in a strong market as aggressive investor preference moves away from stable, steadily growing businesses in search of increased returns. “The companies we invest in are not really the sort to get the pulse raised too much day-to-day,” he says.
Seventy per cent of the portfolio is invested in three core sectors: consumer goods, healthcare and information technology. “Companies within our ‘big three’ sectors all exhibit asset light, cash generative and steady growth characteristics,” says Elliott. “These are base requirements that fit with our aim of delivering a steady and growing income stream.” The yield is currently 2 per cent and predicted to grow.
The IT sector has been the standout sector for the fund in recent months. “Large IT companies servicing global business have been en vogue, with pre-pandemic trends accelerated by the shove of many of our working and social lives into the online realm thanks to Covid-19,” Peters adds.
“For example, Microsoft and Oracle’s stocks both delivered plus 50 per cent total return this year in sterling to the end of October. This market action is being backed by real-world results; in the most recent quarter, Microsoft’s revenues increased by 22 per cent year-on-year, thanks in no small part to its cloud businesses growing by 29 per cent and its profit margin also expanded."
The portfolio has seen robust revenue and profit performance through 2020 and 2021. “Importantly, the current valuations of our portfolio companies are compelling in absolute terms but particularly in the context of a market that continues to rise,” says Elliott.
“As we look to the future, some of the factors that are currently causing supply chain disruption and demand spikes will likely abate, but other trends will certainly emerge.
"We select a diversified portfolio of companies across a range of industries and geographies with the financial resources to absorb negative short-term impacts and make the most of longer-term shifts in demand. In doing so the portfolio is well-prepared for the worst, but also ready for the best of what might happen."
Darius McDermott is managing director of FundCalibre
