We seek to understand the cash-generative nature of companies as this lies at the heart of their ability to pay dividends. Capital appreciation will follow if a dividend is strong and growingAdrian Gosden, Investment Director.
The team believes that dividends are the most important driver of total equity returns over the long term, due to the powerful effect of compounding on reinvested income.
They consider that the most effective way to benefit from the effect of reinvested income is through an investment approach that is focused on identifying stable, cash-generative companies capable of paying a strong, progressive dividend. By its nature, this approach steers the fund away from overvalued areas of the market.
The process determines a company’s ability to deliver a strong and growing dividend. Free cash flow filters narrow a broad universe of listed UK stocks to identify companies with robust balance sheets and strong cash flow characteristics. Stocks are subject to in-depth fundamental analysis focusing on the company’s industry environment (competitors, inputs/outputs and regulation) and management (quality of management, strategy and history).
Approximately 200 company meetings are conducted annually. Timing analysis determines whether stocks are attractively priced and sufficiently liquid. If these criteria are fulfilled, the team adds positions and sizes them according to conviction, based on the appropriate risk/return trade-off. The portfolio typically holds 50-60 stocks of 2-3% each, with income sources diversified across industries and companies. The team closely monitors valuations, liquidity and business fundamentals, and adjusts exposures accordingly.
Adrian joined GAM at that time, bringing a wealth of experience with him. He has applied a consistent and repeatable approach to equity income portfolios for over 20 years, and has a strong track record investing in the sector. Chris, who has been with GAM since 2011, has specialist expertise in UK equity research and fund management.
GAM’s scale, stability and infrastructure enables the team to focus solely on investing, while benefiting from the firm’s extensive cross market and cross asset class expertise.
All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.
Investments in equities (directly or indirectly via derivatives) may be subject to significant fluctuations in value.
Positions may increase in size relative to the size of the Fund. The risk is monitored by regularly adapting posi- tions.
The regulatory regime to which certain of the Investment Managers are subject to in the UK could be materially and ad- versely affected. The decision to leave the EU could also result in substantial volatility in foreign exchange markets and a sustained period of uncertainty for the UK, the EU and the global markets in general.