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There are very few Global Equity Income fund managers that have managed a strategy for more than a decade, let alone consistently beaten one of the world’s most followed Indices over such a long period
An important aspect of KBI’s approach is winning by not losing
Delivering consistent outperformance1 over 11 years against the MSCI World Index, the flagship KBI Developed Equity Fund offers a diversified strategy with a focus on downside protection
KBI target a portfolio that is on average growing faster than the market, cheaper than the market and having greater quality characteristics than the market2
These characteristics don’t win every day, week or quarter but indeed no strategy offers such a promise. By sticking to a consistent, repeatable and common sense approach to investing, we believe that despite days when the market wants expensive and low quality there will be more days when the market wants what KBI already has
KBI's conviction is that companies with the financial strength and discipline to maintain and grow their dividend commitments will be likely to outperform
As total return investors, KBI’s all weather style is appealing to income and growth investors alike and avoids many of the pitfalls of traditional income investing
Key to achieving this is an understanding that even though KBI is committed to dividends, equities are in fact a total return asset class. For KBI, it is the focus on companies that demonstrate a combination of dividend yield, dividend growth and change in valuation, which ultimately drives equity returns
According to KBI's research combining dividend yield and dividend growth has proven to be very powerful historically. The relationship between dividend growth and the valuation that investors will pay for a stock has strengthened since the tech bubble. They believe that rising company valuations are now more correlated to dividend growth and improving payout ratios than to pure earnings growth
KBI believe many equity income strategies have an inherent problem. Many managers are often over fixated with applying a high yield screen at the start of their process resulting in only a narrow universe of stocks filtering through – typically higher yielding ‘defensive’ type companies. This generates high stock and sector specific risks and the opportunity to diversify is often missed. It is our view that many other important characteristics such as the quality, sustainability and growth in dividends are also compromised as a result of initially screening out on a high yield hurdle
KBI look at things differently and a key differentiator is their segmented approach to portfolio construction. They aim to find companies that are likely to maintain and grow their dividend commitments in every sector and every region across all market caps, even ones where dividends are low and not typically used as a method of analysis. Through this approach to portfolio construction, looking where other managers typically may not, KBI seeks to find and exploit mispriced stocks
Furthermore, KBI find that within each industry group, there is a significant dispersion of quality and return, which can provide a real alpha opportunity by identifying and investing in potential long-term winners in each segment. According to their analysis this results in diversified and uncorrelated alpha within the portfolio
KBI's performance in Global Equity Income spans more than a decade and is based on strong fundamental research managed by a dedicated and very strong and stable team. Their rules based yet hands on process combines the disciplines of unemotional investing with the wisdom of an experienced and human approach through different market cycles and has delivered consistent performance, good downside protection and less risk than the market2
Competitively, KBI believe their investment thesis and process is a differentiated one in the Global Equity space and, indeed, the high-income marketplace. They have a very different investment perspective from most other investors (in particular not being fixated on earnings forecasts), which brings the advantage of independent thinking, the exploration of different information, and enables them to populate a different investment space. KBI are often told by their clients that not only is the strategy selected in its own right it often also blends well with and complements others
Source: 1KBI, Datastream, Bloomberg. Returns are gross of fees in GBP to 31/12/2014 and 2KBI as at 30/06/2015
KBI produce some terrific research. Unlike some houses, they don’t feel the need to write commentary for its own sake. There may be months where they have nothing to add to the debate but when they produce something, it is definitely worth making a coffee, printing a copy and setting aside 20 minutes to read it
Click below to read KBI’s current market thoughts.
July 2017 - KBIGI Developed (Global) Equity Strategy
April 2017 - KBIGI Developed (Global) Equity Strategy
January 2017 - KBIGI Developed (Global) Equity Strategy
October 2016 - KBIGI Developed (Global) Equity Strategy
July 2016 - KBI Developed (Global) Equity Strategy
April 2016 - KBI Developed (Global) Equity Strategy
January 2016 - KBI Developed (Global) Equity Strategy
October 2015 - KBI Developed (Global) Equity Strategy
July 2015 - KBI Developed (Global) Equity Strategy
April 2015 - KBI Developed (Global) Equity Strategy
The Dynamic Search for Sustainable Dividends
The Recent Experience in Emerging Markets
Trump - New Era for Investors?
KBIGI Emerging Markets Whitepaper
Our commitment to responsible investing
The Dhando Approach to Great Steak
Whitepapers - dividends more important as interest rates rise, diversified equity managers