In this series of short profiles, we ask leading fund managers to defend their investment strategies, reveal their views on cryptocurrency, and tell us what they'd never buy.
This week our interviewee is Blake Hutchins, co-manager of the Morningstar Silver-rated Troy Income & Growth trust (TIGT).
Which Sector Shows the Biggest Promise in 2022?
Income funds at Troy have significant exposure to branded consumer staples companies. They sell affordable, everyday products through trusted brands that consumers often have a real affinity for. The repeat purchase nature of their business model makes them incredibly resilient, even in difficult economic environments. The fact that they don’t suck up huge amounts of cost and capital as they grow means they are incredibly cash generative and are therefore great dividend paying stocks.
The sector is very diverse. By owning a number of companies in the industry, we gain exposure to a wide range of exciting categories; premium spirits through Diageo, beauty and personal care through Unilever, consumer health through Reckitt, premium coffee through Nestlé and household products through P&G. So far in 2022, these companies’ cash flows and dividends have held up well. We would expect this to continue into 2023 and beyond.
What's the Biggest Economic Risk Today?
A nasty recession in the United States.
Describe Your Investment Strategy
I am a quality-oriented income investor. I look for companies that can grow consistently, whilst generating significant free cash flow. I want that free cash flow to be allocated appropriately, by excellent management teams. This involves reinvesting to maintain and enhance competitive advantage. Then, I look for genuinely surplus free cash flow to be returned to investors through regular dividends.
Ultimately, I like to invest in stable companies that I believe can grow free cash flow per share and therefore dividend per share, in a relatively predictable way, indefinitely. I look to buy these companies when they trade at attractive free cash flow yields, and hold on to them for a long time to benefit from compounding
Which Famous Investor Do You Admire?
Over the past 15 plus years, I have worked with a handful of exceptional investors. I greatly admire and have been positively influenced by these few people.
More broadly, I am a big fan of Jeremy Siegel’s work. It teaches us that over the long-term, a sensible buy and hold approach to equities is likely to deliver a superior return to other asset classes. I am certainly a proponent of “stocks for the long run”.
Name Your Favourite "Forever Stock"
“Forever” is a long time! I have owned Diageo since 2009 and believe there is still a very long runway for that stock. It’s a top holding in Troy Income & Growth.
What Would You Never Invest In?
Companies that periodically tend to generative negative free cash flow and are highly cyclical. A disaster waiting to happen for any income investor. That’s why we tend to avoid airlines, house builders, miners etc.
Growth or Value?
Growth dressed as value. I love finding high-quality companies that can grow, trading on attractive free cash flow yields.
House or Pension?
House for a home, pension for tax efficient compounding.
Crypto: Brilliant or Bad?
Good idea gone rather mad. I have never bought crypto personally or professionally.
What Can be Done to Improve Diversity in Finance?
Much more. Focus on the grass roots and cast the net wide: schools, universities, internships, graduate programmes. Inspire all types of people from all types of backgrounds to invest and to not fear money.
I also believe flexibility for parents and others in order to keep people with all sorts of interests in the industry for the long-term is so important. Better role models are needed for younger people looking to join the industry.
Have you Ever Engaged with a Company and Been Particularly Proud (or Disappointed) in the Outcome?
We have engaged with our consumer goods holdings on a range of topics ranging from single-use plastics, water conservation, de-forestation. Generally, I would say that European companies are ahead of non-European companies on these matters.
What’s the Best Advice You’ve Ever Been given?
Seek out good advice; most people don’t, it is usually free and generally you find people like to give it. Also, use lists and tackle the task you least want to do, first.
What Would You be if You Weren’t a Fund Manager?
My father, brother and sister were professional tennis players, whilst I also play to a fairly high standard. I would have given that a good go.
