The Interview – Pramit Ghose, Bloxham: “If we can expand the dividend stream above inflation, we increase investors’ standard of living”
Pramit Ghose, managing partner at Dublin-based independent stockbroker Bloxham and lead manager of the Elite Bloxham Global Equity Income Fund, argues that while 2009 has been a year for absolute return and corporate bond funds, next year will favour equity income funds as investors and brokers realise that corporate bonds are now fully valued.
GFM: What is the background to your company and fund?
PG: Bloxham was formed more than 150 years ago to manage investments for high net worth clients in Ireland and today is the only independent stockbroking firm remaining in Dublin. I established the firm’s fund management business in 2002 and today manages GBP750m in global equity portfolios, including GBP600m in our flagship global equity income strategy.
In April 2008 we decided to launch the Elite Bloxham Global Equity Income Fund, which was set up with UK investors in mind; it is regulated and authorised in the UK by the Financial Services Authority. The fund is an extension of what we have been doing in Dublin since 2002.
I have 10 years’ experience in managing global equity income portfolios, which is probably unique for this relatively new asset class in the UK. I am supported by three other senior fund managers in the team, two of whom I worked with before joining Bloxham.
GFM: Who are your key service providers?
PG: The independent auditor for the Elite Bloxham Global Equity Income Fund is Grant Thornton UK, and the administrator, trustee and depository is BNY Mellon. The authorised corporate director is Way Fund Managers, and our legal advisers are Burges Salmon.
GFM: How and where do you distribute the funds? What is the profile of your current and targeted client base?
PG: We have close distribution relationships with Ireland’s two biggest life companies, and we also distribute our funds directly to brokers and private clients. In the UK we have two people working on distributing the Elite Bloxham Global Equity Income Fund throughout Great Britain and Northern Ireland, targeting the high end of the IFA market as well as stockbrokers, discretionary players, private banks, wealth managers, nationals and multi-manager operations. We are also selectively targeting some life companies, and we have a consultant working with us to target the pensions marketplace, including charities.
GFM: What is your investment process?
PG: Our investment process has five stages, starting with the unique Bloxham quantitative screening model, which screens more than 3,000 stocks globally. The model’s more than 20 elements include above-average dividend yield, low debt-to-equity ratio, low price/earnings ratios, stable or growing earnings, and high cash cover on dividends. The screen throws out around 300 stock ideas for our senior fund managers to analyse further in stage two. This model aims to screen for stocks that give the highest probability of dividend growth going forward in a consistent manner.
Stage two begins with setting our top-down view in terms of geography, themes, sectors and stocks. I am primarily responsible for this, which I do by researching key strategists I rate, meeting company management, attending conferences, understanding the best fund managers’ views (we have a global fund of funds product that allows this), speaking to internal and external analysts we rate, liaising with our in-house economist and favoured external economists, and reading key publications. Once our view is set, we can look at the stocks within the 300 screened that best fit the top-down views and themes.
Stage three involves fundamental analysis carried out by our four senior fund managers. We also collate the views of favoured external analysts that we rate and have known for many years, in some cases are quite niche and specialist in nature, and add their findings to our own internal analysis. The results are debated within the team until a list of favoured stocks is agreed; I have the final say in resolving any disputes.
At the end of this stage we have a list of 50 to 70 stocks that will make it into the portfolio based on both top-down ideas, such as recently increasing cyclicals, and stock-specific ideas such as Japanese retail group Seven & I, which stands to benefit from the new government’s promises to stimulate domestic spending.
Stage four involves portfolio construction to ensure we have the correct weightings for stocks and the right balance within the portfolio from a sector, thematic and geographical perspective. No single stock can be account for more than 6 per cent of the portfolio, while and a mid-cap or small stock cannot exceed 2 per cent.
This stage also involves using our unique technical analysis model, which helps us time the buying and selling of stocks better. It identifies when stocks are overbought and oversold and when stocks are entering an uptrend or downtrend in the markets. This is an invaluable tool for us and adds to performance. Stage five involves portfolio execution and implementation.
GFM: What is your approach to managing risk?
PG: We pay attention to monthly quantitative risk reports we receive from independent external firms, although even more importantly we study all our portfolios carefully every day. Our four senior fund managers do nothing else but ensure that the portfolio is well diversified and balanced on a day-to-day basis, ensuring we are not taking on undue risk in any area of the portfolio, whether geographical, thematic or from a sector or stock view.
GFM: How has your recent performance compared with your expectations and track record?
PG: Our tried and test investment process works well in bull and bear market conditions, but we try to improve it where we can. Over the years both the screening and technical analysis models have been improved, and we have added resources to the team since 2002. We hope that the improvements in our process increase our outperformance of our benchmarks. Since launching our first Global Equity Income Fund in Ireland in 2002 we have outperformed the FTSE World Index by about 25 per cent and expanded our dividend stream every year. We expect to continue this performance and hope to improve it as the investment process evolves.
GFM: What opportunities are you looking at right now?
PG: We are looking to increase our US exposure, given the weakness of the dollar, which we feel is now oversold. In addition, we are looking to buy ‘less cyclical’ cyclicals that have been left behind in recent months, such as Home Depot, Syngenta and H&M.
GFM: What events do you expect to see in your sector in the year ahead?
PG: We expect investor demand for global equity income to increase, as investors and advisers focus on the diversification benefits over UK equity income.
GFM: Are investors’ expectations shifting between capital preservation and growth? How do you deal with this?
PG: As the markets improve, investors’ appetite for riskier assets and growth assets tends to increase. Our global equity income product is quite clear in its objective to provide consistent dividend growth from the portfolio and medium- to long-term capital growth from a global basket of mainly large-cap financially strong stocks. This type of fund is generally of interest to clients seeking a decent income from their investments that will grow steadily over time. If we can expand the dividend stream above inflation, we increase their standard of living.
GFM: What differentiates you from other managers in your sector?
PG: We are more conservative than most of our peers and have a better dividend growth track record than most. We also have a much longer track record than our competitors, and have one of the most experienced teams in the field with an average of 23 years’ industry experience. I was one of a handful of fund managers to highlight concerns about a possible credit crunch back in March 2007, on the back of which I reduced my financials weighting. This type of move comes from years of experience and gut instinct.
Other areas that differentiate us from our peers are that we are a boutique operation, small compared to the JP Morgans of this world but able to make quick decisions that can be implemented right away. I am heavily tied into the future growth and profitability of Bloxham, giving investors and brokers confidence that I will be at the firm for the future.
Since the launch of our Irish-domiciled Global Equity Income Fund in October 2002, we have outperformed the FTSE World Index in euro terms by about 25 per cent. Dividend growth has averaged more than 8 per cent a year during this period, and last year – one of the worst on record for dividends –our dividend stream grew by 5.5 per cent.
Unlike our peers, our global equity income funds are our sole focus and key to our success, so it is vital we ensure they perform very well. Our GBP600m in global equity income mandates is more than most of our competitors.
GFM: How do you view the environment for fundraising?
PG: This year has been one for absolute return and corporate bond funds, but we believe 2010 will again be a year for equity income funds as investors and brokers realise that corporate bonds are now fully valued, whereas equity income is looking attractive. We are positioned for this.
GFM: Do you have any plans for other product launches in the near future?
PG: We expect to launch a global absolute return fund in the future.
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