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.
Why invest for income? Two reasons are because we're living longer and real returns from bank accounts are negative. What's more, in response to challenging economic conditions, interest rates look set to stay lower for longer just as pensions now have to last for longer. The search for sustainable income has never been so urgent. But why global equity income? In the next 12 months around the world some $1.3trn will be paid out by companies in dividends.
Right now there are 550 firms worldwide paying a yield of more than 3% and likely to increase that by 5% or more next year. These are the true income stocks. Of those 550, only 60 are in Britain and only 13 of the world's top 100 yielding stocks are based here. For choice and range, the prudent investor has to look globally.
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So the opportunities for a global income fund are much greater, while the case for diversification is clear. This explains why we launched the Artemis Global Income Fund. The sector may be small and relatively immature at the moment, but in an otherwise uncertain world, we're sure this will change.
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There are many high-quality companies trading on price/earnings (p/e) ratios of eight to 14 with 4%-5% yields and well-capitalised balance sheets. In our minds, such an investment is more attractive than buying a government bond of a de facto bankrupt government at a 2% yield. Corporate bonds are also expensive ways of achieving income.
One of the firms we like is American media conglomerate CBS (NYSE: CBS). This is a cyclical asset whose reliance on advertising income means that profits move in sync with the economy. The jewel in the crown is the CBS broadcasting division, which has some of the best media assets in the world. We think it can exploit these in a more profitable way in the future. It also has a huge back-catalogue of content. CBS isn't a particularly high dividend payer. We bought it because it's a tremendous cash generator a true income stock, despite not being a dividend stock. That's a subtle but important distinction to free-cash-flow proponents like ourselves. Dividend growth is as important if not more important than the dividend yield itself.
Another long-term winner, in our view, is VF Corporation (NYSE: VFC). It is largely unknown to the public, but it is a giant that owns many household brand names: Lee and Wrangler jeans, Eastpak bags and suit-cases and Vans trainers. It also owns the North Face (outdoor products), which is increasingly becoming a play on Asia where the appetite for skiing/hiking and other pastimes is growing rapidly. This is another stock with a moderate dividend yield, but a great history of paying dividends. On top of that, it buys back shares every year. As a shareholder, you get your cash back.
Another strong performer has been Origin Enterprises (LSE: OGN), an Irish agri-services company. It's a leading agronomy consultancy to British and Polish farmers, while also selling fertiliser and marine proteins. Origin recently acquired Rigby Taylor, the main supplier of seeds, fertilisers and herbicides to most Premiership groundsmen. So, next time you watch the Cup Final at Wembley, you will know why the grass is greener.
