After success with their UK Income offering, Evenlode launched a Global Income offering in late 2017. Since then, geo-political events have made markets difficult to navigate.
Still, since that date both funds have produced positive returns compared with losses for their respective Investment Association averages.
Ben Peters and Chris Elliott, managers of the TB Evenlode Global Income fund, say they look for companies in a similar way as the Equity Income fund does.
That is, businesses with “sustainable competitive advantages in industries with good barriers to entry often backed by intellectual property or some intangible assets”. “That characteristic, if you can find it, often leads to healthy levels of free cash flow generation and good returns on capital,” says Peters.
“We believe that if we can find these types of companies, they often will pay us and our investors a decent yield today, but very importantly for us be able to grow the income stream that’s delivered to investors into the future.”
Below, the managers talk Morningstar.co.uk through a couple of recent purchases and one longer-standing holdings they are backing.
Accenture (ACN)
Like many in the US IT sector, Accenture’s share price had a rough final three months of 2018. “It’s been quite a fast grower in recent years, but the market has been worried about a slowing of top-line growth,” explains Peters.
From peak to trough, the stock fell almost a quarter to $133. But that had been from an all-time high of $174. It’s not hard to see why the market rated the stock so highly, with revenue, earnings and dividend growth of 30%, 39% and 43% respectively since 2014.
Evenlode took advantage of that share price weakness to add the company to the Global Income fund in January. Peters adds: “The price has now come back to a rate that we feel the risks are compensated for by the fact that this is a very high-quality business.”
Accenture provides consulting, technology and outsourcing services to blue-chip businesses globally. In fact, says Peters, it’s one of the very few firms that can add value to the world’s largest companies.
Elliott says it’s largely seen as a pure-play consultancy. This side of the business does boast a strong competitive position. Its consultants work closely with clients, which puts them in a good position to win incremental, value-add contracts.
Under the bonnet, though, there are more strings to Accenture’s bow. “Accenture has a surprising amount of intellectual property,” he adds. That includes world-leading technology in areas such artificial intelligence, marketing and data analysis.
This has been honed through its partnerships and can now be scaled out to other clients, giving further areas of future growth.
Intel (INTC)
The semiconductor industry has been having as bad a time of it in recent months as any sector. Trade tensions between the US and China have disrupted supply chains, while falling demand for smartphones is depressing demand for chips.
Since hitting an 18-year high of $47 in November 2017, the Intel share price has fluctuated in the 15 months since but is currently at exactly the same level today.
As well as worries over the chip industry, Intel has suffered in recent months due to a cooling off in orders for its cloud business, according to Elliott. That’s largely because people have ordered so much over such a short period of time, they are still working out how to integrate it all, he explains.
But there are plenty of other areas of growth the company can tap into. It’s moving into the nascent 5G industry, while its autonomous driving business, Mobileye, is already profitable.
Jerusalem-based Mobileye, bought for $15 billion in 2017, develops vision-based advanced driver-assistance systems, which provide safety systems for self-driving cars.
Other areas available to tap into growth include artificial intelligence, as well as client computing, their traditional business, which looks after tablets, personal computers and the like.
Henkel (HEN)
German conglomerate Henkel has three divisions: adhesive technology, beauty care and laundry & home care. The former is its largest business, where its most-recognised brands are Pritt and Loctite.
But Peters says the bigger portion of this division comes from products it supplies to industrial applications. For example, most of the world’s smartphones use Henkel glue, as do cars and other automotives.
“It’s quite a high-tech, precision, high-performance adhesive. Aside from the brands, a lot of what they have is intellectual property-driven,” adds Peters.
Elsewhere, it owns Persil, the soap powder brand and Schwarzkopf, the hair product manufacturer. Peters calls it a “very interesting conglomerate” and likes the consumer goods space more generally, despite underperformance seen in recent years.
The market has been worried over Henkel, though. For one, the beauty care division is underperforming. Second, while the adhesives business is “very nice”, its industrial end-markets are cyclical. Peters thinks both these factors have weighed on the share price, which is down 29% since mid-2017.
But those worries are creating a valuation opportunity, counters Peters, with Henkel still in good positions in the markets in which it operates. The fund added a position in the summer of 2018, though the stock has continued to fall.
A couple of weeks ago, the firm said it would increase its investment into its brands and reposition them through a new digital marketing strategy. “I think for the long-term health of the business this is sensible, but it will impact margins in the shorter term,” Peters predicts.
