KBI Developed Equity Fund
(Global Equity Income)

Video commentary on the fund

 

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More than a decade of outperformance against MSCI World Index

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

Portfolio Characteristics

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

Alpha Proposition - income is only part of the story

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 

Diversified and uncorrelated alpha 

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

A disciplined and established process 

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

Where in a portfolio may this fund be considered?

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

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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

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