Snakes and Ladders – a Ladder

The objective of the mandate is to achieve a rising income combined with capital growth primarily from a portfolio of equities selected on a global basis. From an income perspective the fund targets a yield of at least 4% and in performance terms seeks to outperform the MSCI AC World Index.

The investment process derives from a process that has been successfully applied by Adrian Frost in the management of the Artemis Income fund since 2002. To this end, free cash flow is the cornerstone of the managers’ process. The investable universe is screened to identify companies with a free cash flow yield in excess of 6%. This narrows the universe to around 500 stocks for further qualitative evaluation.

The team also spends a significant amount of time appraising company management and believes that management’s ability to allocate capital efficiently is as crucial as the accessibility to attractive cash flow yields. They also seek to determine the likely direction, volatility and sustainability of cash flow.  Stocks are classified into three categories, namely Core, Growth and Risk/Special Situations and with around 40 – 60% allocated to names viewed as Core.  No one stock will ever comprise more than 5% of the fund or be responsible for more than 5% of the fund’s yield. He also looks to avoid more than 5 – 6% of the yield coming from one theme and no sector will have an active bet greater than 10%.

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