The TM Redwheel Equity Income Fund is fast approaching its three-year anniversary after it was launched in October 2018.
We look at the portfolio from five angles to see what makes it different to its peers and why its value approach offers a possible alternative route to sustainable investing.
Presenting the TM Redwheel Equity Income Fund
Ian Lance, manager of the TM Redwheel Equity Income Fund, gives a snapshot of the five key attributes of the fund. Discover why he believes the rally of value stocks is likely to continue for some time and why value investors are in a unique position to push for sustainable change, thanks to their engagement with ‘old economy’ energy companies.
Asset class
Process
Differentiator
Team
Track record
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No investment strategy or risk management technique can guarantee returns or eliminate risks in any market environment. RWC Partners Limited is authorised and regulated by the Financial Conduct Authority.
After a tough year for UK dividends in 2020 amid the uncertainty created by Covid-19, Lance expects them to bounce back quickly in 2021 as that element of uncertainty starts to be removed and the UK economy starts to recover.
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£324M
AUM
Managed by Ian Lance and Nick Purves, the TM Redwheel Equity Income Fund focuses on UK value-orientated companies to meet its aim of providing income to investors. As an area in which to invest, value has been out of favour for the last decade as growth companies have outperformed, but Lance believes the outlook going forward is more positive.
“The spread in valuations between growth and value stocks is the widest it has ever been, which means value stocks look very cheap,” he says.
In addition to being cheap, value stocks started to outperform growth at the end of 2020 following positive vaccine news. Using history as a guide, Lance does not expect this rally to last only six months, noting after the global financial crisis in 2000 value stocks outperformed for five years in a row.
Fund size
Investing in between c.29 stocks, the fund has an active share of over 80% and a tracking error to its benchmark of about 11%.
Fund has over
active share
Philosophically, Lance says investors have a tendency to overreact to short term news. As a result, the process which underlines the fund simply aims to rotate around the market to where the team see areas of undervaluation created by these overreactions.
“When the economy goes into a downturn investors become very fearful and tend to sell down cyclical stocks to a much lower level then they probably deserve to be,” says Lance. Instead the Redwheel team value businesses by estimating their long run earnings potential, which Lance says helps them avoid companies which appear cheap but in reality are at the top of a cycle or in structural decline.
11%
Tracking error approx
to benchmark
80%
Lance argues if shareholders can put pressure on mining or energy companies to improve their environmental performance, not only will it benefit the company, it will benefit them as investors and society as a whole. This, he says, is a much better tactic than simply divesting these businesses, which benefits nobody.
Because of the industries in which value investors are involved – namely ‘old economy’ polluting sectors such as mining and energy – Lance says value investors are in a unique position to push for sustainable change.
“We think it is wrong for people to out a line through these businesses and say they are not sustainable,” says Lance. “In our opinion, these companies are part of the solution, not the problem.”
Fund dividend yield
*Dividend yield based on trailing 12 month distribution divided by the latest NAV. Source: RWC, FactSet (using GICS Sector Classifications via MSCI). All data as at 30th April 2021.
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vs.
INDEX
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The managers are supported by three analysts: John Teahan, Jaako Kinanen and Larry Furness, who help them with both portfolio implementation and company research.
Combined Lance and Purves have over 60 years of investment experience, joining RWC from Schroders in 2010.
They have both been running value money for about 30 years, and Lance says both of them come from “fundamental research” backgrounds.
Combined
investment experience
60 YRS
Supported by
analysts
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Since launch on 4 October 2018 to 31 April 2021, the fund has generated a capital return of 9.65%, which is ahead of its benchmark, the FTSE All-Share, which rose 5.81%.
Over one year to 31 April, the fund has delivered a capital return of 46.67%, outperforming the benchmark by over 20 percentage points (FTSE All-Share up 25.95%). Lance says: “To put the performance into context, some people have described the last few years as one of the most challenging periods ever for value investors, so we are very pleased to have come out of this with returns significantly ahead of the index.”
Past performance is not a reliable indicator of future results.
IMPORTANT INFORMATION
Source: Federated Hermes as at June 2020. Performance presented in Euros for the F EUR Acc share class, net of fees and charges. Fund inception: 11 May 2010. Benchmark: ICE BofA Merrill Lynch Global High Yield Constrained EUR Hedged.
Capital return
since launch in 2018
9.7%
over one year to 7 April
51.06%
Past performance is not a guide to the future. The price of investments and the income from them may fall as well as rise and investors may not get back the full amount invested.
Source: Redwheel, as at April 2021
