The fund investing in your kitchen cupboard, February 2019

Launched in November 2017 and added to the Chelsea Selection in October 2018, Evenlode Global Income is still a relatively new kid on the block. But in performance terms it is maturing quickly: since launch it has returned 8.13%* compared with 1.92%* for its average global equity income peer.

While the fund may not be a familiar one just yet, its contents will be: almost a third of the portfolio can be found in your kitchen cupboard….

Managers Ben Peters and Chris Elliot visited our offices this week. Here's what they had to say.

What have been the best performing stocks in the funds so far?

“The top two contributors have been Cisco and Wolters Kluwer.

“Cisco is responsible for the technologies that underpin the internet – its plumbing if you like. With the advent of cloud computing, the company has expanded into providing security services for networks, the cloud and the 'internet of things'. This includes the ability to detect malicious threats in encrypted internet traffic. The company expects internet traffic to increase three-fold over the next five years, so the future is looking positive.

“Wolters Kluwer, is a Dutch information, software and services company that services the legal, tax, accounting, finance, risk and healthcare sectors. Its products and services help healthcare professionals to make decisions, accountants to manage compliances and businesses manage their legal affairs. Knowledge and content, combined with increasingly cloud-based delivery enables the company's products to become deeply embedded in their customers operations. We particularly like the fact that 78% of revenues come from recurring sources such as subscriptions.”

Do you have any holdings that are exposed to trade war worries?

“We hold the maximum 40 stocks we'll allow ourselves at the moment. Of those only a couple are exposed to the US/China trade wars.

“Polaris, the Canadian snowmobile company, and Apple. Polaris is an assembler, not a manufacturer, so it is 'asset-light'. It has also diversified into pontoon boats and small motorcycle brands and has been localising European production in Poland. So the impact is marginal unless there is a real escalation.

“The bigger question around trade wars, in our view, is what they will do to consumer confidence.”

Talking of the consumer, 27% of the portfolio is invested in consumer staples companies...

“Yes. It's an area we like. PepsiCo is our largest holding, for example. Believe it or not, Pepsi only accounts for 12% of the company sales. While it also has brands such as Doritos, demand for its guilt-free lines of lower sugar and fat products like Quaker Oats (which now represent 50% of its products) is driving growth.

“The stable performance of its traditional soft drinks also provides cash for investment in new areas and for paying dividends back to shareholders. 22 of its brands generate more than $1bn of sales annually and the company's portfolio boasts four of the top ten retail brands across all categories.

“We really like this branded nature of the business. As more people go online, being the number one or number two brand is very important. If you think about your own shopping habits, we pick a number of products because we are familiar with them and then they are subsequently 'suggested' to use each time we shop.

“The company has also been willing to evolve its portfolio: the Sodastream acquisition, for example, reduces the consumer's environmental footprint with less plastic, less shipping and less water used as they are making their own fizzy drinks at home.

“Another top ten holding is Unilever, whose consumer products are instantly recognisable to the 2.5 billion people who use them globally every day. It's products include Dove, Domestos, Lifebouy and Lipton. 55% of revenues are from emerging markets and many brands have been present in their local markets for decades or longer”.

What's next?

“We've got a trip to Japan next month, which we are really excited about. Since the late 1980s – when the Japanese equity bubble burst - Japanese corporations have been very risk averse and there is lots of cash on balance sheets. We like to call is a 'duvet of cash' – its comforting but it makes analysing the financials of a company much harder.

“It has led to very strong balance sheets though and, since Prime Minister Abe introduced his stimulus programme, the culture has started to change. More of this money is now being returned to shareholders in the form of dividends, which makes it interesting for us as global equity income investors.”

The views expressed are those of the managers, are not statements of fact, and should not be considered as advice or a recommendation to buy, sell or hold a particular investment. Investment markets can go down as well as up and market conditions can change rapidly. The value of an investment in this fund, and any income from it, can fall as well as rise and investors may not get back the amount invested.

Published on 27/02/2019