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Quality seeker Evenlode goes global with its second fund
Cotswolds-based Evenlode Investment is an interesting name in the asset management world and one that investors are increasingly eager to follow.
Evenlode isn’t a household name, yet its flagship fund TB Evenlode Income (GB00BD0B7914) has proved to be very popular, growing to nearly £2bn in size since its 2009 launch.
Having shown the investment community that it has a knack of picking good stocks and succesfully managing a portfolio which has a minimum of 80% in UK shares, the asset manager is now making waves with a second fund that has a global remit.
GLOBAL SEARCH FOR EQUITIES
TB Evenlode Global Income Fund (GB00BF1QMV61) launched in November 2017 with the intention of replicating the asset manager’s existing investment process across a broader universe of equity opportunities.
It is run by Evenlode co-founder Ben Peters and co-manager Chris Elliott who are putting money to work in a select group of global companies with the aim of delivering an attractive yield today, combined with sustainable real dividend growth over time.
The global fund consists of a diverse range of companies generating cash flows from differing industries across varied geographies.
TWO FUNDS, SINGLE STYLE
Peters explains the global fund was developed in response to strong feedback from clients eager to access the Evenlode investment process applied to a broader range of investment opportunities.
The portfolio has the same approach as the original fund, whose investment process emphasises the quality of investable businesses.
Peters and Elliott have a focus on larger companies, while the fund will have a low portfolio turnover with long term holding periods.
By investing for the long term at attractive valuations, they argue the approach allows the microeconomics of underlying holdings to play out over time and for fundamental free cash flow growth and dividend growth to drive returns.
CASTING THE NET WIDE
Peters and Elliott insist there is a broad range of high quality businesses available, operating in sectors that are under-represented in the UK, businesses that also offer investors portfolio diversification of cash flows by currency and geography.
Building on the success of the first fund, permitted to invest up to 20% of its assets in non-UK listed companies, Peters explains that Evenlode deliberately went out and built this wider investment universe.
‘We’re currently invested in 37 companies, but there are 92 businesses in our global investable universe, so we’ve certainly got a high quality list.’
They’ll look to insulate the Evenlode Global Income portfolio by investing in companies with strong competitive positions, good balance sheets and high levels of free cash flow, carefully selecting names from a universe of ‘household names’ and ‘hidden champions’.
Evenlode’s strategy is to own quality companies and the firm has a specific definition of quality; ‘Sustainable growth with limited need for capital reinvestment’.
Companies considered for inclusion share three key characteristics: asset light business models, strong economic moats and high barriers to entry, and their customers’ purchase decisions are not predominately based on price. A good example of the latter is tech titan Microsoft which dominates the market for office software.
Peters and Elliott insist these characteristics often lead to consistent cash generation, which pays for dividends that rise into the future.
‘We’re forecasting a yield of a little less than 3%, but with good prospects for growth,’ adds Peters, whose investment process has a natural bias towards sectors such as consumer goods, healthcare, consumer services and technology.
EXAMPLES OF PORTFOLIO HOLDINGS
Although the fund has yet to publish a factsheet, we’re told early portfolio positions include consumer goods colossus Unilever (ULVR); Cisco Systems, the world’s biggest producer of vital data connectors such as routers and switches; and healthcare conglomerate Johnson & Johnson.
The fund also has positions in German fashion house Hugo Boss and off-road vehicles manufacturer Polaris Industries.
Peters and Elliott are convinced of the long-term payout generating potential of Wolters Kluwer, a Dutch digital information and services conglomerate Peters claims is ‘very high quality’, boasts ‘very stable cash flows’ and has leading niche market positions.
Wolters Kluwer has moved away from print publishing and into digital content and digital services and has a high degree of customer integration – ‘it is embedded in the user’s workflow and increasingly driven by a subscription model’.
Also passing muster with the pair is global food and beverage powerhouse PepsiCo. Elliott makes the point that its online market share is greater than its offline share.
‘Perhaps contrary to expectations, consumers actually search less widely for alternative products online than they do in physical stores,’ says Elliott.
‘In a traditional store, the physical shelf displays products they either haven’t heard of previously or thought of recently, with prices highly visible and comparable.
‘Online they are more likely to search for a brand, e.g. “Pepsi-Max” or “Coca Cola Zero”, providing less chance for the consumer to encounter alternatives or compare prices.’
EARLY BOOST FROM M&A
Peters says it has been an interesting start for the second fund thanks to takeover activity. ‘It took us five years to have a takeover in Evenlode Income and in just three months, we’ve already had two takeovers and two large pieces of M&A with Evenlode Global Income’.
DISCLAIMER: Editor Daniel Coatsworth has a personal investment in both Evenlode funds referenced in this article