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GAM UK Equity Income

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 growing
Adrian Gosden, Investment Director.

Reasons to Invest

Disciplined approach

Equity income managers typically take a long-term view, as reinvested dividends can make a huge difference to returns over time, due to the power of compounding.

Steady income

Dividends are typically much less volatile than earnings and can deliver steady income for investors. Dividend growth has held up consistently in recent years.

Consistent returns

Equity income funds can be a reliable investment in periods of lower growth and market volatility, as companies are often reluctant to cut dividend payments.

Appeal in a low-rate environment

The current UK dividend yield premium over government bond yields is considerable. Low rates support the case for investing in a UK dividend- orientated strategy.

Our Edge

Experienced team

Renowned equity income investor, Adrian Gosden, and UK equity manager, Chris Morrison, have significant expertise with over 35 years’ combined investment experience.

Core

A focus on established companies across the market cap spectrum with strong dividend prospects, predominantly in the UK, ensures a broad opportunity set.

Active stock selection

Stocks are chosen for their ability to generate income, rather than their index weighting, resulting in a portfolio with a high active share of approximately 80%.

Flexible, agile approach

The team has a long-term conviction approach to stock selection, yet is agile in reacting to market challenges, with the flexibility to invest up to 20% of portfolio outside of UK equities.

Philosophy and Process

Investment Philosophy

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.

Investment Process

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.

1. Cash flow analysis

  • Understand cash generative nature of company
  • Assess company’s ability to pay dividends

2. Industry assessment

  • Understand the industry in which a company operates
  • Evaluate the quality of a company’s cash flow

3. Management review

  • Analyse balance sheet, including off balance sheet items
  • Company meetings and group investor meetings

4. Timing analysis

  • Valuation and liquidity analysis
  • Investments that meet both criteria are added

Investment Team

GAM UK Equity Income has been managed by Adrian Gosden and Chris Morrison since inception in October 2017.

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.

Fund Information

Key Risks

Capital at risk

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.

Equity

Investments in equities (directly or indirectly via derivatives) may be subject to significant fluctuations in value.

Investment Positions

Positions may increase in size relative to the size of the Fund. The risk is monitored by regularly adapting posi- tions.

Brexit Risk

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.

Resources

Fund profile – GAM UK Equity Income

Risk management at GAM

GAM UK Equity Income: On the lookout for the next opportunity

Investment Week Article

Adrian Gosden: The Brexit process has been too much for investors

Contacts

This material/presentation may mention sub-funds of GAM Funds, registered office at 20 King Street, London SW1Y 6QY, an umbrella investment company.