Emma Wall: Hello, and welcome to the Morningstar series "Why Should I Invest With You?" I'm Emma Wall and I'm joined today by Stuart Reeve, Manager of the BlackRock Global Income Fund.
Hello, Stuart.
Stuart Reeve: Hello, Emma. How are you?
Wall: So, having a look at your underlying portfolio, you have a large allocation to the U.S. There has been a lot of talk about the U.S. coming to the top, though of course it's a pretty attractive dividend play, isn't it, because you might not get very much growth from the whole market but you do get some good income?
Reeve: You do, although, I mean, in aggregate, the U.S. obviously is not the highest yielding part of the global market and we've got about 45% of our portfolio invested in U.S.-listed stocks. I mean, relative to an index, that's still a bit underweight. But these are multinational businesses.
They can grow their profits and their cash flows and their dividends through time. And people think that the U.S. is expensive and in aggregate, one can make that case. But I think the stocks that we own in places like industrials and technology companies are really not that expensive and really still quite attractive, both from a yield perspective and a growth perspective.
Wall: So, you've had that geographical allocation for a while, but are you suggesting there that actually within that the sectors have changed over?
Reeve: Yeah. So, there has been a bit of change. So, we have reduced some exposure to our U.S. consumer staples, but we've still got a significant exposure to that. But we've been adding to the technology space where we really like some of these maturing technology businesses.
Wall: Because if you look at the sectors in the portfolio as well, there are a couple there which look very defensive and these are areas that have done incredibly well over the last five years, this while bond proxy phrase, but it has meant they've become very expensive. Fine, if you've been holding them for five years, but now is the entry point probably less attractive?
Reeve: So, we do. We own lots of consumer staples as you know, and I really dislike this phrase bond proxy because this says to me two things. It says it pays a yield and it can't grow because in a fixed income world you don't see growth. So, it's been really crucial to us to think about, okay, the yield is fine. These businesses are very predictable, they are very cash generative and the question is, can they grow?
And I think if they are multinationals then they are exposed to emerging market consumers where demand is still growing through time, pricing power is okay and I think that you – as long as you've got a reasonable timeframe for investment, you can make some really good returns in absolute sense by investing in this space. Whether that's better than the market in the short term, time will tell.
Wall: What about thereabout – when you are seeing these growth opportunities because I know you do – you've mentioned industrials, but you also have a little bit of stuff that's sort of exposed to commodities. Is this a new position? Is this something that you started to see an opportunity in now?
Reeve: No. In fact, we've got very little direct commodity exposure now. So, we've got no energy or oil exposure in the portfolio and we've got no mining exposure. We do have in the materials space some specialty chemicals. But I'm still not persuaded that we need to go back into that area. We've always believed in pricing power and the ability to sort of control your own cash flow.
And to me in this space, you've still got an issue of we don't know what the prices of the commodities are going to be, how much investment is necessary to protect the future growth and a lot of these businesses don't have enough cash to do both the investment and pay me a sensible dividend and growth through time. So, we'll see how that works out, but I'm very comfortable not to be owning stocks in that space for now.
Wall: Because they were key dividend payers, they were part of everyone's, sort of, income portfolio, but you're saying actually the time is not right yet for you to find them attractive?
Reeve: Well, I agree with that. From a global perspective, you have to remember that if you're a U.K. investor, thinking about this thing, clearly, Shell and BP and the U.K. banks have been a significant source of your dividend income. But in a global perspective, really that doesn't count for much. So, we've not been tied to that. It's not necessary for us to go there to deliver the yield above the global market average which we're always looking to do. So, yeah, we're happy stay away from that for now.
Wall: Stuart, thank you very much.
Reeve: Thank you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
