The middle name of Henry Dixon, manager of Man GLG UK Income Fund, should be ‘conservatism’.
This is because every decision he makes with regards to the fund’s portfolio is based on delivering a growing income for investors while at all times mitigating investment risk.
It is an approach that so far has worked well. Since Dixon took over at the helm in late 2013, the fund has outperformed most of its immediate peers in the UK equity income space.
Just as crucially, it has provided investors with a growing annual income.
Indeed, its income success has prompted the fund to start paying investors a regular monthly income instead of restricting payments to twice a year.
‘Investors demanded it,’ says Dixon. ‘We realised that paying income semi-annually had become outdated and archaic.
The decision was then whether to opt for quarterly or payments every month. Regular monthly income is seen as something of a holy grail so we went for it.’
Already, Dixon is preparing to tickle up the monthly income investors receive, from 0.4p to around 0.44p once the fund’s new financial year starts next spring.
This is on a current fund price of about £1.16. The idea then is to keep the monthly payments stable for 11 months with the last payment flushing out any income the fund has accumulated.
Man GLG manager Henry Dixon, pictured, has had recent success from holding bonds in Tullow Oil
Unlike a stock market-listed investment trust that can build income reserves over many years, the type of fund Dixon manages is not allowed to do this, hence the emptying of its income tank before the start of another financial year.
The fund is spread across most sectors of the UK stock market – and its 67-strong portfolio has exposure to companies beyond the FTSE 100 Index.
But Dixon tends to pick his income- generating stocks from three broad pools.
First, he looks for businesses whose assets he believes are undervalued – and where debt levels are low and earnings growing. If the business model is difficult to replicate, the case for investing is even stronger.
Property company Hansteen is a case in point. Dixon says: ‘It has assembled a portfolio of light industrial estates and is generating an annual income of between seven and eight per cent.’
Second, he likes companies with strong balance sheets which generate lots of cash and are in a good position to pay a growing dividend.
Finally, he is quite happy to invest in bonds issued by companies, especially if they can be bought when their price is depressed, but likely to rise on the back of good news.
‘If you get your timing right, you can get an equity-like return,’ he says. He has enjoyed recent success from holding bonds in oil exploration company Tullow Oil.
Man GLG manager Henry Dixon has enjoyed recent success from holding bonds in oil exploration from the company Tullow Oil, pictured off the coasts of Guiana
Although Dixon is too reserved to reveal his view on the UK stock market – unlike rival fund manager Neil Woodford who has recently predicted a sharp correction – he admits there will be ‘lots of corporate pressures in 2018’ and that financial asset prices ‘might struggle’ as a result.
He says dividend cover – an indication of a company’s ability to sustain its dividend payouts by comparing them to earnings – remains ‘thin’ across the stock market. He is also concerned about corporate debt.
But Dixon is confident the conservative formula that has put his investors in good stead over the past four years is solid enough to withstand any fallout.
He adds: ‘We will continue to shield our investors from balance sheets eroded by debt and avoid share price overvaluations.’
Could you train your brain to get richer? Listen to the This is Money podcast
Could you train your brain to get richer?
Behavioural economics tells us that we regularly behave irrationally – and nudge theory has been used by governments and organisations around the world.
But could you take matters into your own hands, tackle your own temptations and make yourself wealthier – or just happier?
On this week’s podcast, Simon Lambert, Lee Boyce and Georgie Frost look at some tricks you can deploy.
Also we look at why NS&I’s new income bonds are proving such a hit with readers.
Plus, just in case all that brain training doesn’t go as planned, Simon outlines how and why you should get an investing plan B for when the market inevitably crashes one day.