KBI North America Equity Fund

 Video commentary on the fund


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More than a decade of outperformance against MSCI North America Index

There are very few North America fund managers that have managed a strategy for more than a decade, let alone consistently beaten what is often perceived to be one of the world’s toughest and most efficient markets over such a long period

An important of aspect KBI’s approach is winning by not losing  

Delivering consistent outperformance over 11 years against the MSCI North America Index and peer group, the KBI North America Equity Fund offers a more diversified strategy and greater downside protection than most1 (past performance is not a guarantee for future performance)

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 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 can be considered a total return asset class. For KBI, it’s the combination of dividend yield, dividend growth and change in valuation that they look to capture and it is this that drives their equity returns

KBI's analysis shows 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. Rising company valuations are now more correlated to dividend growth and improving payout ratios than to pure earnings growth

Diversified and uncorrelated alpha

We 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 missed. It is our view that many of the 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 others 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 provides a real alpha opportunity by identifying and investing in the companies with long-term growth potential in each segment. According to their analysis this results in diversified and uncorrelated alpha within the portfolio

A disciplined and established process

KBI's success in North America spans more than a decade and is based on strong fundamental research managed by a dedicated and very strong team. Their unique rules based process combines the disciplines of unemotional investing with the wisdom of an experienced human approach through different market cycles and has delivered consistent performance, 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 differentiated in the North American Equity space and, indeed, the high-income marketplace. They have a different investment perspective from most 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 their own 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 as at 30/06/2015. The risk characteristics are calculated using monthly gross returns over an eleven-year period relative to the MSCI North America Index and 2KBI, 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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