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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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.
-
House prices rise 2.9% – will the recovery continue?House prices grew by 2.9% on an annual basis in September. Will Budget policies and ‘higher-for-longer’ rates dent the recovery?
-
Nvidia earnings: what to expectNvidia announces earnings after market close on 20 November. What should investors expect from the semiconductor giant?
-
Somero: trading this overlooked bargainFeatures Mechanical-screed maker Somero dominates its niche and is attractively valued. Matthew Partridge picks the best way to trade it.
-
How to find big profits in small companiesCover Story The small- and micro-cap sectors are risky and volatile. But with careful research and patience, investors could make huge gains. Matthew Partridge explains how to find the market’s top tiddlers.
-
The hidden gems on Aim, London's junior marketFeatures Aim, London’s junior market, is risky – but you can find solid stocks at low prices. Scott Longley reports.
-
Is Aim finally coming of age?Features The Aim market of mostly smaller companies has traditionally been seen as a bit of a backwater. Is it time to change that view? Matthew Partridge talks to Paul Latham and Richard Power of fund management company Octopus.
-
Three Aim-listed firms that will thrive in a post-Brexit worldOpinion Matt Tonge and Victoria Stevens of the Liontrust UK Smaller Companies Fund pick three Aim-listed firms that will survive Brexit turmoil.
-
Fetch! The Chinese small-cap stocks to buy in the Year of the Dog
Opinion Each week, a professional investor tells us where she’d put her money. This week: Tiffany Hsiao of Matthews Asia selects three Chinese small-cap stocks with exciting potential.
-
Small and mid-cap stocks with big potential
Opinion Professional investor Guy Anderson of the Mercantile Investment Trust selects three small and medium-sized firms with promising prospects that the market has missed.
-
Get cheap, reliable growth from smaller companiesFeatures One of the most reliable long-term investment trends is the long-term outperformance of smaller companies over blue chips. Max King picks some of the best ways to buy into this growth.
