Doel looks to mega caps to cover dividend in British Assets

F&C manager Phil Doel adds to holdings in major income-payers like Vodaphone in UK market to support dividend on £441m portfolio.

F&C Investments’ Phil Doel has been increasing his exposure to mega caps in the £441m British Assets trust in a bid to cover its dividend.

The dividend has been uncovered during the last two financial years, with the board forced to dip into reserves to pay the 6.1p aggregate payout last year having been hurt by an overweight position in BP.

Doel, the group’s director of UK equities who took over the trust last month from Julie Dent, has been boosting exposure to high yielding defensive names.

He has been adding to positions in Vodafone, GlaxoSmithKline and British American Tobacco. The stocks are also some of his main defensive plays in his open-ended fund, the £212m F&C UK Equity Income fund.

Under former manager Dent, the trust had 20% in global equities. Since taking the helm Doel has revamped the allocation to focus predominantly on high-yield companies.

“We have made the trust even more defensive after adding to high-yielding UK equities to boost the portfolio’s income,” he said.

“I have been adding to the mega caps such as GlaxoSmithKline as I believe share prices have been harshly treated over the past couple of years.”

He said Glaxo had not been rewarded by the market for having the strongest prospects in the sector. He added mega caps in general have strong cashflows which should protect dividends and enable them to grow, making them attractive in a low growth environment. Doel has also been boosting exposure to Asian-focused bank Standard Chartered.

He said the firm’s franchise overseas should result in growing dividend payouts. However, he is subdued on the UK domestic banks, with no exposure to RBS, Lloyds or Barclays, warning there is too much uncertainty clouding the sector.

“Until there is more clarity over the European sovereign debt crisis, I will not be going back into the other banks, but with Standard Chartered trading on 0.6 times book value and poised for a tactical bounce, now is the time to add to the stock,” said Doel.

Last month the trust changed benchmark, from a composite of 75% FTSE AllShare index and 25% FTSE World (ex UK) index, to 80% FTSE AllShare and 20% FTSE World (ex UK).

According to JP Morgan Cazenove, the move to reduce exposure to overseas equities is going against the trend of the UK Growth and Income sector, with a number of trusts including Alliance Trust and Securities Trust of Scotland boosting emerging market exposure.

“In an environment where we feel diversification of income is key and investing solely based on country of listing is increasingly becoming an outdated concept, we tend to favour a more global approach,” the broker said.

However, it kept its neutral recommendation on the trust, adding the focus on higher income stocks should help cover the dividend.