ONSIDE / OPINION
FINDING VALUE
Peter Elston
[email protected]
0151 906 2450
I
’m delighted to have the opportunity to tell you about
what is going on at Seneca Investment Managers. I’ve
been on board since November 2014 and I hope that a lot
has happened in that time. It certainly feels like it has!
Rather than start by telling you what I think about markets
at the moment, I thought it would be better to first give you a
bit of background about our funds. Some of you will already
know that we are a multi-asset fund manager, as opposed to
a specialist equity or bond manager. What this means is that
we are seeking to add value in a number of different ways:
by picking good UK companies, overseas equity funds, bond
funds, and alternative investments, as well as through asset
allocation (being in the right markets and asset classes at the
right time). We also do a lot of analysis on structural trends
like urbanisation and changing demographics that help
guide us towards the more interesting companies, funds or
countries. So, there’s a lot going on, particularly for a team of
six, which means we have to be well organised, but also that
if we get it right our funds can offer investors a lot of value.
We manage two open ended investment companies (OEICs),
an income fund and a growth fund. The income fund seeks
to deliver a high and stable income stream, and indeed has
a yield of well over 5% (we are moving from quarterly to
monthly distributions, and will also smooth distributions
throughout the year, changes that we think will further
enhance the fund’s appeal). So, the fund should be suitable
for those in retirement needing income or those who have a
lower tolerance for risk. The growth fund is a bit racier, and
doesn’t have the same need to generate income. Thus, it is
able to consider investments that do not necessarily throw
off income today, but would be expected to in years to come
(if you think about it, ‘growth’ is really just future income).
The two funds sit in different peer groups (the income fund
in the IA Mixed Investment 20-60% Shares sector and the
growth fund in the IA Mixed Investment 40-85% Shares
sector). What we’re ultimately seeking to do is to be in the
top quartile over periods of five years or more. Roughly
speaking, this means our income fund over time producing
real returns after costs of 3% per annum and our growth
fund 5%, though in any one year returns could be well
above or below this. We also manage an investment trust,
the Seneca Global Income and Growth Trust plc. In terms of
what it is seeking to achieve, it sits roughly halfway between
the two OEICs.
As far as our investment style is concerned, we are value
oriented, though that means different things to different
people. The value investing doctrine first set out by
Benjamin Graham and David Dodd in their 1934 classic,
Security Analysis, was all about having a margin of safety
that came from investing in high quality companies that
generally had high dividend yields and thus were trading
below intrinsic value. But one can extend this philosophy to
other asset classes such as bonds (why would you want to
buy a 10 year inflation protected Gilt at the moment, which
is yielding -1%?) as well as to asset allocation (the higher
yielding markets often tend to produce the better returns).
So, our investing approach is essentially value oriented, even
if not exactly what Graham and Dodd preached.
As for what I think of markets at the moment, equity markets
generally still look OK. They have performed quite well in
recent weeks and months so there is certainly scope for
them to take a breather, but valuations still look reasonable.
In the UK, the dividend yield of the equity ma ɭ