Strategy profile
January 2014
Key Features
Offers investors attractive
levels of income from a
portfolio of global equities
and the potential for capital
growth
Actively managed, research
driven approach
Draws on collective
expertise of Threadneedle’s
investment professionals
Highly experienced
investment team
A proven track record of
long-term outperformance
and high risk-adjusted
returns
Global Equity Income strategy
Key facts*
Lead portfolio manager: Stephen Thornber
Benchmark: MSCI AC World Index
Strategy objective: The strategy aims to maximise total returns, combining a high dividend income and capital
growth, through investing globally in a diversified portfolio of equities
Investment universe: All exchange traded stocks with a market capitalisation in excess of USD 1 billion
Performance target: To outperform the benchmark by 3% per annum (gross of fees) over rolling
3-year period
Stock weightings: +/- 4% versus benchmark
Sector weightings: +/- 10% versus benchmark
Regional weightings: +/- 25% versus benchmark
Number of holdings: Between 75 and 95 securities
Performance returns
1 year %
3 years %
5 years %
Inception1 %
Composite
22.87
10.48
14.95
8.88
Benchmark2
21.15
8.28
12.31
6.18
Value added
+1.72
+2.20
+2.64
+2.70
Source: Threadneedle. Annualised performance as at 31.12.2013 is shown gross of management fees in GBP.
Past performance is not a guide to future results. See the composite presentations and disclosures in the appendix at the end of this profile
for more information on performance, calculation methodology and benchmarks.
1
Inception date of the Global Equity Income strategy is 30.06.2007. 2Benchmark is MSCI AC World Index.
Investment philosophy
We believe that by investing in ‘Quality Income’, which are companies that deliver a high and sustainable dividend,
but also generate growth and operate with a robust financial structure, we can add value for clients by delivering high
income and generating repeatable and superior risk adjusted returns.
Growth
Earnings >5%
Dividends >5%
Income
Yield >4%
Quality
Income
Sustainability
Gearing <75%
Dividend cover >1.25x
*All information as at 31 December 2013. Where references are made to portfolio guidelines and features, these may be subject to change over time and prevailing
market conditions. Actual investment parameters will be agreed and set out in the prospectus or formal investment management agreement. Please note that the
performance target may not be attained.
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Global Equity Income strategy
Investment team
Our 8-strong global equity team is led by William Davies. Team members come from diverse backgrounds,
have extensive investment experience, and bring complementary strengths to managing our global
equity strategies.
The Global Equity Income strategy is led by Stephen Thornber, with Jonathan Crown as deputy. Stephen
has been with Threadneedle since its inception in 1994 and designed and launched the strategy in 2007.
Jonathan joined Threadneedle in 2005, and has been deputy on the strategy since 2011.
James Foreman joined Threadneedle in 2012, and is the Client Portfolio Analyst for our global equity strategies.
Stephen Thornber
William Davies
Neil Robson
Simon Haines
Pauline Grange
Jonathan Crown
Ashish Kochar
James Foreman
Portfolio Manager
25 years’ experience
Portfolio Manager
12 years’ experience
Head of Global Equities
27 years’ experience
Portfolio Manager
11 years’ experience
Portfolio Manager
26 years’ experience
Portfolio Manager
8 years’ experience
Portfolio Manager
14 years’ experience
Client Portfolio Analyst
4 years’ experience
Investment process
We add value for our clients by focusing Threadneedle’s idea generation framework on companies
with a high dividend yield. We seek to identify attractively valued companies that pay high dividends
sustainably, offer attractive growth, and have a robust balance sheet. We construct portfolios from the
bottom-up, not according to a macroeconomic view. Risk is managed by diversifying by stock, sector,
and region, and through balancing different sources of income within the portfolio.
An overview of the investment process in shown in the diagram below:
Focused idea generation
Research and debate
Global team and regional
equity teams
Macro and themes
Typical characteristics:
Dividend
yield > 4%
Company meetings
Investable universe: 1300 stocks
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n Earnings growth >5%
n Dividend growth >5%
n Gearing <75%
n Dividend cover >1.25x
n Detailed fundamental
analysis
400 stocks
Implementation
Select stocks based on
valuation and conviction
Manage risk though
diversification and balance
75-95 stocks
Global Equity Income strategy
Focused idea generation
Implementation
Generation of investment ideas is eclectic, and draws on the skill and
experience of the Global Equity team to combine knowledge of companies
with economic and thematic insight. For this strategy idea generation is
focused on companies that offer a forward dividend yield greater than
four per cent. We apply our own assessment and include special
dividends if applicable.
Portfolio construction and investment decisions are made by the lead
and deputy manager, with the lead manager having the final say.
Portfolio construction is judgement based, with the aim being to invest
in the most attractive bottom up ideas globally, while giving consideration
to maintaining a balanced and diversified portfolio.
Stock ideas originate from within the Global Equity team, or from one
of our regional equity specialist teams. Within the Global Equity team
responsibilities are divided by GICS sectors, however as fund manager
and analyst roles are combined, a generalist mind set is encouraged which
supports debate. The Global Equity team is supported by regional equity
teams covering the US, Europe, UK, Japan, Asia and Emerging Markets.
Our equity, fixed income, commodities and multi-asset teams collaborate
to form our macro and thematic views. These views support idea
generation by highlighting areas of the market that are likely to be a good
source of stock opportunities. They also inform the assumptions we make
when analysing companies. We do not use macro and thematic views to
determine regional or sector positioning.
Each year, across Threadneedle’s equity teams, we coordinate
approximately 3,800 company meetings (both on- and off-site). With a
common meeting diary, global team members are able to join our regional
colleagues in meetings they have scheduled, as well as scheduling our
own. Discussions with management can prompt further research on the
company represented, or a competitor, supplier or customer.
In accordance with our investment philosophy we aim to slightly reduce the
defensive bias of dividend investing by constructing a balanced portfolio.
We do this by focusing our attention on growing companies, and by investing
in different sources of dividends. These sources are Compounders, Assets,
Secular growers, and Cyclicals. They typical weighting of each within the
portfolio is 35%, 25%, 20%, and 20% respectively.
The portfolio will consist of 75-95 holdings. Position sizing is determined
by valuation, strength of conviction, risk, and liquidity. New positions are
typically sized between 0.75% to 1.25% active weight. The largest stock
position is typically less than +2.5% active weight. Where we consider a
stock to be unattractive, we will not hold it, regardless of its weighting in
the benchmark.
Sector and regional weights are a result of the investment opportunities
we find in the market, not a top down view. However, we expect to
maintain diversification at all times, in particular by sector. We consider
regional diversification to be less important given the global operations
of many companies. Risk derived from regional and sector allocation is
closely monitored using daily risk reports, and is considered when making
investment decisions.
Research and debate
When researching a new high dividend paying stock idea our first step is
to examine forward earnings and dividend growth. Typically we are looking
for both to be growing annually by five per cent or more. This indicates that
the company is healthy, and that the high dividend yield is not a reflection
of a weak outlook or industry in secular decline.
We then check the balance sheet and the dividend pay-out ratio.
For corporates we typically require net debt to be less than 75% of a
company’s market capitalisation. For companies such as banks or utilities
an industry specific measure will be used. We prefer companies with
dividend cover above 1.25 times, because this indicates the company
is retaining some profits to grow. In the case of REIT’s, for example,
we examine ratios such as distributable earnings cover.
Further detailed research combines qualitative insights with traditional
fundamental analysis. In a stock review we document the investment
case, positive drivers, risks, and our valuation of the company (usually
in two years’ time). Stock reviews are debated by the Global Equity team,
ensuring that we benefit from different strengths and perspectives.
In support of our research efforts we regularly engage management
in one-to-one meetings. In these we question executives on strategic
direction and decision-making, challenging those we don’t think will
create value for shareholders. We also discuss dividend policy and
assess management’s commitment to shareholder returns. This is useful
in alerting us to the potential for special dividends, which may not be in
consensus estimates.
Note: Stock characteristics as described are not restrictions, and individual investments may not feature the characteristics outlined.
1
Analysis of business fundamentals focuses on our income, growth, and sustainability criteria as well as: revenue, competitive advantage and position, margins,
returns, FCF and capital deployment, balance sheet, management, end environmental, social and governance factors.
2
Valuation analysis includes an examination of the current valuation (what is implied), and a target valuation at a set future date, usually in two years time.
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GIPS – Global Equity Income Composite
Calendar Year
“Composite
Total Return
Gross %”
“Primary
Benchmark
%”
“Relative
Performance
%”
“Composite
3-Yr St Dev
%”
“Benchmark
3-Yr St Dev
%”
“Number of
Portfolios”
“Composite
Dispersion”
“Composite
Assets
(millions)”
“Total Firm
Assets
(millions)”
“% of Firm
Assets”
2007 (since 30/06/2007).
3.09
2.61
0.47
--
--
1
–
16
67,690
0.02
2008
-15.96
-19.48
4.37
--
--
2
–
25
50,753
0.05
2009
18.62
20.56
-1.61
--
--
2
–
51
60,486
0.08
2010
25.47
16.77
7.45
19.43
21.34
2
–
64
67,671
0.09
2011
-2.33
-6.17
4.09
15.81
17.2
1
–
70
73,042
0.10
2012
12.37
11.67
0.63
11.7
12.69
1
–
187
78,626
0.24
2013
22.87
21.15
1.42
11.08
10.95
1
891
88,633
1.01
YTD
22.87
21.15
1.42
1
891
88,633
1.01
3 Months
3.67
5.03
-1.29
1
6 Months
4.07
6.26
-2.06
1
1 Year
22.87
21.15
1.42
1
1 Year
22.87
21.15
1.42
1
3 Years
10.48
8.28
2.03
1
5 Years
14.95
12.31
2.35
1
10 Years
--
8.56
-
--
Since Inception (30/06/2007)
8.88
6.18
2.54
1
1 Year
22.87
21.15
1.42
1
3 Years
34.85
26.94
6.23
1
5 Years
100.71
78.70
12.32
1
10 Years
--
127.43
-
--
Since Inception (30/06/2007)
73.87
47.64
17.77
1
Annualised Returns
Cumulative Returns
The ‘Firm’ is defined as all portfolios managed by Threadneedle Asset Management Limited and Threadneedle International Limited since 01/01/2000 excluding directly invested property portfolios.
Threadneedle Asset Management Limited and Threadneedle International Limited are authorised and regulated in the UK by the Financial Conduct Authority. In addition, Threadneedle International Limited
is registered with the Securities and Exchange Commission (SEC) in the United States as an investment adviser under US Investment Advisors Act of 1940. Threadneedle Asset Management ‘the Firm’
claims compliance with the Global Investment Performance Standards (GIPS) and has prepared and presented this report in compliance with the GIPS Standards. Threadneedle Asset Management has been
independently verified by Ernst & Young LLP for the periods 1st January 2000 to 30th June 2012. The verification reports are available upon request. Verifications assesses whether the firm has complied
with all composite construction requirements of the GIPS Standards on a firm wide basis and that the firm’s policies and procedures are designed to calculate and present performance in compliance with
the GIPS Standards. Verification does not ensure the accuracy of any specific composite presentation. This composite comprises all discretionary accounts managed according to the Firm’s Global Equity
Income strategy. The primary benchmark for this composite is the MSCI AC World index. The portfolio returns used in composites are calculated using daily authorised global close valuations with cash
flows at start of theday. Composite returns are calculated by using underlying portfolio beginning of period weights and monthly returns. Periodic returns are geomterically linked to produce longer period
returns. Gross of fee returns are presented before management and custodian fees but after the deduction of trading expenses. Returns are net of non-recoverable withholding tax. Additional information
regarding policies for calculation and reporting is available on request. The representative fee scale for this composite is 0.650% per annum. The dispersion of annual returns is measured by the asset
weighted standard deviation of portfolio returns represented within the composite for the full year. Dispersion is only shown in instances where there are five or more portfolios throughout the entire
reporting period. Derivative instruments may be used for efficient portfolio management and currency management. The primary use of derivatives is not designed to create a highly leveraged investment
position. The three year annualised ex-post standard deviation measures the variability of the composite and benchmark returns over the preceding 36 month period. A full list of Composites is available
on request. Composite Creation Date 30th June 2007.
Important information: For use by institutional clients and consultants only (not to be passed on to any third party). Past performance is not a guide to future performance. The value of investments
and any income is not guaranteed and can go down as well as up and may be affected by exchange rate fluctuations. This means that an investor may not get back the amount invested. Performance figures
and other data relating to a fund or a representative account are provided for illustrative purpose only and may differ from that of other separately managed accounts due to such differences as cash flows,
charges, applicable taxes, and differences in investment strategy and restrictions. Where references are made to portfolio guidelines and features, these are at the discretion of the portfolio manager and
may be subject to change over time and prevailing market conditions. Actual investment parameters will be agreed and set out in the prospectus or formal investment management agreement. Please note
that the performance target may not be attained. The research and analysis included in this document has been produced by Threadneedle Investments for its own investment management activities, may
have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice. Information obtained
from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed. This document is a marketing communication. The research and analysis included in this document
have not been prepared in accordance with the legal requirements designed to promote its independence and have been produced by Threadneedle Investments for its own investment management activities,
may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice. Information
obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed. The mention of any specific shares or bonds should not be taken as a recommendation to deal.
Threadneedle Asset Management Limited. Registered in England and Wales, No. 573204. Registered Office: 60 St Mary Axe, London EC3A 8JQ. Authorised and regulated in the UK by the Financial Conduct
Authority. Issued in Australia by Threadneedle International Limited (“TINTL”) (ARBN 133 982 055). To the extent that this document contains financial product advice, that advice is provided by TINTL. TINTL
is exempt from the requirement to hold an Australian financial services licence under the Corporations Act in respect of the financial services it provides. TINTL is regulated by the Financial Conduct Authority
under UK laws, which differ from Australian laws. Issued in Hong Kong by Threadneedle Portfolio Services Hong Kong Limited 天利投資管理香港有限公司 (“TPSHKL”). Registered Office: Unit 3004,
Two Exchange Square, 8 Connaught Place Hong Kong. Registered in Hong Kong under the Companies Ordinance (Chapter 32), No. 1173058. Authorised and regulated in Hong Kong by the Securities and
Futures Commission. Authorisation does not imply official approval or recommendation. The contents of this document have not been reviewed by any regulatory authority in Hong Kong. You are advised to
exercise caution in relation to the offer. If you are in any doubt about any of the contents of this document you should obtain independent professional advice. Issued in Singapore by Threadneedle Investments
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Issued 01.14 | Valid to 05.14 | T15567
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