Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: Jacob de Tusch-Lec, manager of the Artemis Global Income Fund.
Although this summer marked the fifth anniversary of the financial breakdown, investors are still preoccupied with the same concerns, and equity prices are still being driven by political and macroeconomic events. But we try not to be distracted and focus on picking equities and companies that we like for the medium to long term: stocks that we find cheap, attractive and that are delivering a high and growing yield.
Compared with the past, the equities of these companies do not seem expensive. There are many decent companies trading on price-to-earnings (p/e) ratios of eight to 12 with 4% to 7% yields and healthy balance sheets. To me these investments are more attractive than, say, buying a government bond from an effectively bankrupt government at a very low yield.
In today’s world of too much volatility and too little income, Scandinavia is one bright spot and my first investment theme. Our biggest two holdings are Norwegian: Gjensidige (NO: GJF), a Norwegian insurance company with a yield of 7% in a strong currency and a solid business model; and DNB (NO: DNB), Norway’s largest bank. Some people may find these stocks boring, but we are more than happy to be bored.
Norway has a small population, more oil income than its population can spend and an economy where companies are encouraged to make money. And although Scandinavia may appear to be something of a ‘crowded long’, where many investors are hiding until they get some clarity on the crisis in the eurozone, its fiscal and external strength stand out.
Another promising theme is fertilisers and potash. On the back of very hot weather globally (except in Britain, of course!), crops have withered and soft commodity prices, such as corn, have gone up. This is good for manufacturers of fertilisers so we have added Yara (NO: YARO), a global leader in nitrogen fertiliser, to the fund.
We already hold Israeli Chemicals – the world’s lowest-cost potash manufacturer – and Origin Enterprises (LSE: OGN), an agricultural one-stop-shop for British farmers. So we are positioning ourselves for further strength in this area.
Our third theme is income. The expected dividend growth on our current portfolio is 3%-8% over the next 12 months (depending on currency moves), so well above inflation rates. We feel the portfolio’s dividend is secure, with decent free cash-flow cover.
The underlying companies in the portfolio have a net debt to earnings before interest, tax, depreciation and amortisation (EBITDA) of around 1.5 times. This suggests that the debts of the companies we own are more than manageable – even if the world does slip into another recession. We reckon the outlook for income is bright.
For its yield and stability we like Asian real estate yielding 5%+ in good, hard currencies. Far East Hospitality Trust (SP: FEHT) owns and invests in Singaporean mid-level hotels and serviced apartments. It pays a 6% distribution yield, which we think will grow by some 5% a year. The company’s initial public offering in August was ten times oversubscribed, which may be a sign of excessive popularity. But for now, we do think that asset-backed income generating equities are a good place to be.
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