Can you give a brief overview of your strategy in terms of what you are trying to achieve for investors, your investment process and the make-up of the investment team?
Launched in November 2022, the Wellington Global Equity Income Fund is actively managed and seeks to deliver long-term total returns in excess of the MSCI All Country World Index and provide income in excess of broader equity markets.
We invest in quality, reliable dividend payers, but don't believe dividend yield should be the centre point of an equity income process. To us, it's an output, not an input. Instead, we focus on dividend-paying companies, looking for the intersection between quality and valuation, where we believe the best risk-adjusted returns and income reliability can be found.
We seek long-term stability and remain wary of what other investors are excited about. We think this can differentiate our views and lead to a lower correlation to the wider market, potentially providing downside mitigation over time. However, we also believe that by finding that sweet spot between quality and value, especially when capitalising on short-term controversy to find attractive entry points, we can achieve an attractive dividend income along with upside potential.
In managing the Wellington Global Equity Income Fund, we leverage the research of Wellington's broad resources, interacting extensively with our global industry experts, equity research analysts, ESG research analysts, sustainability team, and portfolio managers globally, to generate differentiated ideas.
Why would you describe this strategy as a fund to watch?
Concentration and long-term focus
Our process instills a disciplined long-term focus, investing in a concentrated portfolio with low turnover. We hope to hold companies through cycles by investing in businesses with sufficiently high returns on capital and high cash flow to support dividends even at cyclical low points.
Income, but not at all costs
The highest-yielding stocks are often cheap for a reason, and maximising dividend yield can increase portfolio risk to a greater degree than it improves return. Alongside emphasising income, we believe our prudent quality and value bias may offer investors the potential for downside mitigation.
Tailored experience
Having invested in global equities for over 20 years, experience has taught Fund Manager Andre Desautels to remain long-term, be skeptical of exuberance, and to stay focused on downside mitigation. We believe focusing on these areas can help the portfolio benefit from opportunities the market is overlooking.
What is your outlook for the fund and how are you positioning your portfolio as we move into 2024?
The story for equity markets this year has been a narrow one. Outside of pockets of strength in US tech giants and AI-related names, broader equities remain largely flat. Our aim is not to outperform the market over every short-term period. Instead, our goal is to outperform broader markets over the long-term through a focus on income paying companies, with quality business models, purchased at attractive prices, that have the potential to deliver strong total returns over the years ahead.
We don't seek to reposition the portfolio for every macro data point but recognise there is a case to be cautious on the back of several market dynamics: namely rising real rates and cost of capital, tighter financial conditions across most of the globe, weakening PMIs, and increasingly mixed consumer data. However, because of our focus on free cash flow generative and quality businesses, with proven histories of returns and a persistent ability and willingness to pay dividends, we believe our companies are well positioned to weather market uncertainties. Our positioning therefore reflects our emphasis on bottom-up, company specific opportunities.
We are currently finding opportunities within Utilities, Health Care, and Financials, where we believe our holdings have the potential to exhibit resilient economic performance and see them offering attractive long term return potential.
Predicting where markets move next is a tricky game, and market timing is not our edge. Instead, we will continue to focus on where we believe we can add value - finding companies at the intersection of quality, value, and income.
Can you identify a couple of key investment opportunities for your fund you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level.
It is interesting that despite these aforementioned macro clouds, several traditionally defensive sectors have underperformed the broader market so far this year, such as Consumer Staples, Health Care, and Utilities. We continue to see increasing value in these sectors, with below-average economic sensitivity, and attractive risk-adjusted returns. In the third quarter, we began to take advantage of such opportunities, initiating positions in Kenvue, the recently spun-out consumer health care division of Johnson & Johnson known for its range of staple brands, and Crown Castle, a REIT operating within the world of data centres (cell towners, cell nodes, and fiber cabling).
As we look ahead, we continue to seek similar opportunities to find quality, economically resilient businesses at attractive prices, with a positive skew in potential return.
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