Buy, hold or sell: Guinness Global Equity Income

Published by Rebecca Jones on 13 January 2016.
Last updated on 13 January 2016

Buy hold sell


Global advertising behemoth WPP is a new purchase for Mortimer and his co-manager Matthew Page, who initiated their position in the company this year. Like most of the managers' holdings, the firm occupies around 3 per cent of the fund's total portfolio, which is equally weighted across 35 positions.

For Mortimer, WPP's key attractions include a comparatively low forward price/earnings (p/e) valuation of 14.6 compared to an average of around 18 for FTSE 100 firms, and strong earnings growth of around 8 to 9 per cent a year.

The manager also believes that fears about the ability of WPP to remain competitive as advertising becomes increasingly digital and social media-led are unfounded.

Indeed, Mortimer says that WPP should easily be able to hold onto its position as the world's fifth largest advertising company for a number of years to come.

Guinness Global Equity Income performance'The market is worried about how advertising is changing, the evolution to digital, mobile etc, and whether or not smaller incumbents may encroach on WPP's territory.

'We think, though, that if you look historically, the company has been quite innovative, in that it has done an incredible number of bolt-on acquisitions to gain exposure to different products and markets,' he says.

Moreover, rather than viewing WPP's recent foray into emerging markets such as China as a negative, Mortimer sees it as an added bonus: a way to gain exposure to the region through a large, well-established multinational company.


Mortimer's hold is US technology company Cisco, one of the world's leading suppliers of data networking equipment and software.

At a market capitalisation of $140 billion (£93 billion), Cisco is certainly no small-fry, while the $60 billion of cash on its balance sheet serves as a reassurance for Mortimer in terms of the sustainability of the firm's dividend.

Despite this attraction, the manager bought the company at a relatively cheap p/e ratio of 10 to 11 times, which compared to a US market average of closer to 20 when he made the purchase in August 2015.

Mortimer says this reflected prospects for the company's free cash flow, which is expected to be reducing over the coming years.

However, he believes that fears about this are overdone: 'We saw this as a good example of a well-run, solid company delivering moderate growth, and where the market has been slightly underappreciating that steady growth profile. The company's large cash pile allows it potentially to give back to shareholders through buybacks or dividends.

'Historically Cisco has not been a good payer of dividends, but since initiating a dividend in 2011 it has been growing them pretty rapidly, with the 2015 dividend up 10 per cent on last year's - and this could easily continue.'

The manager does admit that cheaper overseas competitors such as China's Huawei Technologies may prove a threat to the business model. However, Mortimer believes Cisco, like WPP, is big and innovative enough to meet the challenge.


Multinational consumer products company Reckitt Benckiser proved a highly profitable investment for Mortimer, with shares nearly doubling in the four years he held them in his portfolio.

However, its success also proved its downfall, as a soaring share price has worked to increase its valuation substantially and compress its dividend from 4 to 2 per cent over the period.

'Since we bought into Reckitt Benckiser in 2011, its p/e multiple has expanded from around 12 times forward earnings to around 24 times forward earnings today,' says Mortimer.

'The company has done a lot of good things: it has concentrated on its core products, it's completed some divestment, and the market has rewarded it for that.

'However, a lot of the total return has come through that multiple expansion rather than through earnings; the company has never traded at such a high multiple and it is above its 10-year average,' he adds.

He says that Reckitt Benckiser's potential earnings growth is currently standing at around 8 to 9 per cent a year, which he believes is not enough to justify its high valuation.

Having said that, Mortimer maintains that the firm is a good-quality business with sound management, and that should the price fall back for any temporary or superficial reason, he would not hesitate to buy in again.

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