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M&G’s Rhodes sells BlackRock for Aberdeen income opportunity

M&G’s Rhodes sells BlackRock for Aberdeen income opportunity

M&G Investments’ Stuart Rhodes believes Aberdeen Asset Management is a better income play than BlackRock following the sell-off in emerging markets.

The manager of the M&G Global Dividend fund, which targets companies with a ‘bullet-proof track record of dividend growth’, made the move on concerns about US valuations.

This concern is reflected by the rise of BlackRock, which Citywire + rated Rhodes (pictured) sold at around the $325 mark this year having bought into the firm at around $175 at the end of 2011.   

‘In the US it’s getting harder to find companies on reasonable valuations capable of dividend growth and the slightest disappointment in earnings could lead to a nasty correction,’ Rhodes told a conference in Paris. 

‘[At the same time] we are starting to see valuation opportunities in emerging markets and have moved the fund to take advantage of these opportunities, which have the potential to deliver compelling dividend growth.’ 

Other US stocks Rhodes has sold out of this year include insurer Chubb, futures exchange operator CME Group, toymaker Mattel and tobacco firm Reynolds American.

Alongside emerging markets-focused asset manager Aberdeen, these profits have been recycled into companies such as South African logistics firm Imperial Holdings and casino operator Sands China.

Comfortable valuation

According to Rhodes, his portfolio has only seen one dividend cut in the last three years and these fundamental changes have left him feeling very comfortable about the fund’s valuation.

‘The valuation of the fund is down and is now cheaper than the market and that feels good. I believe we have some good opportunities for dividend growth, which sets up for good performance. The valuation of this fund is looking more attractive than it has done in the last two-and-a-half years.’ 

He added: ‘The fund has a significant yield premium to the global market and dividends are still growing nicely. I feel confident in my ability to outperform in 2014.’

Technology opportunity

While Rhodes has sold out of a number of US stocks, his exposure to the US has not dramatically fallen as he sees dividend opportunities in technology stocks.

He owns some of the biggest names on the market including Microsoft, Qualcomm, KLA Tencor, Xilinx and Avago, which yield between 7.1% and 10%.

Rhodes admits the technology sector has been an area he has historically struggled to find opportunities in, but reckons attractive valuations and a greater commitment to dividends offers great potential to income investors.

‘The US technology sector is a silver lining and has rescued our US exposure. When we launched the fund (in July 2008) the technology sector was difficult to find opportunities in but that has now changed materially.

‘A lot of technology firms have been increasing their dividends by 20, 30 and 40% over the last four years.’ 

Other key changes to the fund in the first quarter include a ‘significant’ reduction in consumer staples, which has contributed to the number of stocks in the portfolio falling to an all-time low of 46.

However, this does not necessarily reflect a lack of opportunities in the market, but rather faith in current holdings.

‘We are very comfortable investing in existing names,’ Rhodes said.

Performance

Rhodes protected his performance in 2013 by a pronounced move to a value strategy.

‘In March and April of 2013 we shifted the portfolio to enable us to stand up when a value rally came in,’ he explained.

‘In the second half, value as a strategy recovered and this exceptional performance continued into 2014. We were positioned well for this.’

This helped build on a strong run, which has seen the fund deliver a total return of 34.4% over the three years to the end of March versus the 27% gain by the FTSE World index.

Over five years the fund has outperformed the benchmark by around 40%, returning 143% and according to Citywire data it is the top performer out of the 18 funds with an equivalent track record.

The strategy recently passed the €10 billion (£8.2 billion) mark, establishing it as a core offering in the M&G stable. Rhodes indicated the firm plans to invest further to enhance its success. 

‘This team will grow and we are going to invest in this team when we find the right personnel,’ he said.

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