FINANCIAL TIMES: In search of room to grow: “BP and Shell are respectively the biggest and second-largest holdings in the fund and jointly account for more than 10 per cent of the portfolio, or more than £40m worth of assets. "They offer strong cashflow and very good dividend growth," says Mr Nutt, who has managed the fund since it launched in January 1996.” (ShellNews.net) 5 April 05
By Alexander Jolliffe
Published: April 5 2005
Anthony Nutt, manager of the £410m Jupiter High Income Fund, has been investing heavily in oil stocks in an attempt to take advantage of their potential for high dividend payments.
BP and Shell are respectively the biggest and second-largest holdings in the fund and jointly account for more than 10 per cent of the portfolio, or more than £40m worth of assets.
"They offer strong cashflow and very good dividend growth," says Mr Nutt, who has managed the fund since it launched in January 1996.
The Jupiter fund aims to offer a high, rising income with capital growth. The strategy is to do this mainly by investing in equities, although up to 20 per cent of the portfolio is invested in bonds.
Mr Nutt does not look automatically for high-yielding equities but seeks companies that have the potential to increase their dividends. "It is about businesses that are growing and can grow the dividend," he says, adding that he places particular emphasis on free cashflow.
Jupiter High Income has backed the utilities sector, which accounts for 8.3 per cent of the portfolio. Mr Nutt is attracted by the ability of companies in the sector to increase bills paid by consumers significantly. He also values their handsome dividends and believes dividend cover is acceptable. National Grid is one of the fund's 10 biggest investments, and the manager also favours Scottish & Southern Electric, Centrica, Northumbrian Water and Viridian.
Mr Nutt also likes mining companies, and he highlights Antofagasta for its strong dividend record and Xstrata because of its successful acquisitions. China's strong economic growth has increased demand for commodities, benefiting mining companies.
Apart from utilities, the fund has limited exposure to companies that sell products or services to consumers because Mr Nutt believes that investors should have concerns about consumer spending due to rising interest rates. The Bank of England's monetary policy committee has increased its base rate from 3.75 per cent in November 2003 to 4.75 per cent.
The fund's 20 per cent in bonds has a heavy bias towards short-dated issues.
In a recent research report, Standard & Poor's, the fund ratings company, said Jupiter High Income performed well during 2003 because of its holdings in small and medium companies that excelled in the market recovery. In 2004 the fund's performance was helped by good stock picking, particularly an overweight position in housebuilders and property. According to S&P, the fund also gained by investing in bonds of Corus Group, the Anglo-Dutch steel maker and benefited by going underweight in pharmaceutical stocks and avoiding GlaxoSmithKline.
An investor who had put £1,000 into Jupiter High Income five years ago would have £1,474 now, according to Lipper, the data company owned by Reuters, the media group.
That return left the fund third out of 28 in its category and compares with an average of £1,226 for the UK equity and bond income sector. The fund yields 3 per cent, compared with the sector average of 3.7 per cent.
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