Shares to buy, hold and sell: Samantha Gleave
Rebecca Jones asks co-manager Samantha Gleave which shares she is buying, holding and selling.
BUY: BANCO SANTANDER
The purchase of Spanish bank Banco Santander marks a new chapter for Liontrust’s Global Income fund, which prior to its switch into the IMA global equity income sector last August had no exposure to banks and only 17% of its portfolio invested outside the UK.
However, since the move Gleave and co-manager James Inglis-Jones have been casting their net wider, increasing their non-UK holdings to 45% and upping their exposure to the financial sector.
Despite the previous exclusion of banks from the fund, Gleave claims that Santander fulfils the fund’s two most important investment criteria: strong cash return on capital and an attractive free cash flow yield - a measure of how much "free cash" (after capital expenditures) a company is expected to earn per share.
Gleave says that Santander, like other banks in the region, is also showing some "tentative signs of improvement" in terms of strengthening its capital base and selling down bad loans.
"We bought Banco Santander because the dividend yield, currently over 8%, is attractive for the portfolio. The company is also engaged in quite a significant cost savings plan; it’s targeting €1.5 billion (£1.2 billion) of savings by 2016 and half of that is to be achieved by the end of this year," she says.
Like Santander, French oil and gas company Total scores well on Gleave and Inglis Jones’s two main criteria, demonstrating a strong free cash flow yield of over 14% at the point of investment alongside a dividend yield of 6%.
As Gleave explains, Total has been unloved over the past few years due to its high level of capital expenditure, which has led to volatility in its share price and no real growth in the dividend. However, following assurances from the company that expenditure would peak in late 2013, Gleave and Inglis Jones bought in.
"When Total moved into the global sector last summer we were able to increase our weighting in the company, and it’s probably been one of the best performers in the fund since then. Management has stepped up its strategy of selling non-core assets and as new projects go into production phase the cash flow will be boosted by production growth and by capex falling," she explains.
Total’s share price has made steady gains since last summer, rising 40% from €37.1820at 5 July 2013 to €52.31 at 23 May 2014.
However, while Gleave is happy to hold the position and expects free cash flow to boost dividends, she has no immediate plans to buy any more stock, as the dividend yield has fallen back slightly to 5%.
Gleave and Inglis-Jones recently sold down their holding in Finnish pulp, paper and timber manufacturer UPM-Kymmene, one of the fund’s more unusual stocks, after a period of strong performance.
"We bought UPM-Kymmene for the fund with a dividend yield of over 6% and really, it was a bit of a contrarian value purchase," says Gleave, explaining that although the company faced a difficult trading backdrop of falling paper prices, she was impressed by the manage- ment"s determination to generate cash by cutting costs and selling non-core assets.
"We saw some progress on that in 2013, and the company delivered on its dividend and the shares performed very well; so our decision to sell was a case of us taking profits. The yield has now come back in to around 4.7%," says Gleave.
UPM-Kymmene’s share price has continued to make steady gains, rising 178% from its five-year trough of €4.66 in mid-2009 to €12.97 in May this year; however, Gleave is confident in her decision to sell down her position. "We do have a very rigorous and disciplined approach to selling," she explains.
This feature was written for our sister publication Money Observer
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
Exclusion is a potential loss or specific risk that an insurance policy does not cover and they occur in all types of insurance policies. Common exclusions include: natural hazards (exploding volcanoes, earthquakes) war, nuclear fallout, wear and tear (anticipated through the use of a product, especially motor insurance), UFO damage to vehicles, vehicles “stolen” by vengeful spouses, travelling any pre-existing health problems and travelling to countries the Foreign & Commonwealth Office deems too dangerous.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.