Bruno Lippens of Pictet Asset Management admits that the firm made a mistake when it launched its high-dividend stock selection fund for Japanese investors in 2005.
“We thought that outside of
“What we have seen since about a year ago is a very tangible demand from clients outside of
Accordingly, in May this year, Pictet launched a Luxembourg-domiciled high-dividend selection fund for international investors. For institutions, the minimum commitment is $100 or equivalent in different currencies.
“It is exactly the same strategy and portfolio, we just had to package it slightly differently from a legal point of view,” says Lippens, Geneva-based senior investment manager at Pictet.
This is a low-volatility strategy targeting institutional and retail investors. It is only exposed to infrastructure-type plays – utilities, telecoms, pipelines, railroads, toll roads and waste management – and to stocks that provide a dividend of 3% or more.
Lippens argues that companies which pay sustainable dividend yields over the long term perform better than those that don’t from a share-price perspective, while noting that infrastructure firms are not cyclical and typically operate in markets where there is little competition.
“When you operate in environments like that you create barriers to entry automatically,” he says. “When that’s the case you have a level of pricing power that other industries typically don’t have.”
Over an economic cycle Lippens says this type of strategy typically underperforms when markets exit the trough of a recession. He also concedes that there is local, political and governmental risk in infrastructure investing. “That is why we do our due diligence very carefully.”
He points out that the fund only has a 49% correlation with MSCI World – a proxy for the average equity fund – and stresses that this strategy is increasingly pertinent given the prospect of rising inflation.
“It is clear that every central bank on this planet is printing a lot of money today, and if history is any guide that money will find its way into the economy at some point, which could cause an inflationary shock,” he says.
Overall Pictet has about $11.5 billion in assets in its Japanese high-dividend product and $150 million in its international offering, with an estimated 85-90% of it from retail. It boasted $20 billion at the 2007 peak of the bull market, but it has been hit by disinvestment among Japanese investors, the market correction and the strength of the yen.
Its high-dividend portfolio is about one-third dollar, one-third euro and one-third other, with emerging markets making up about 9% of this last category.
“We would like to have more [emerging markets], but a lot of these companies don’t pay that 3% yield yet,” explains Lippens. “But they are growing rapidly and as they grow they will generate more excess cash and they will start to return more and more in the form of dividends.”
Pictet is in the process of submitting its fourth batch of products to Hong Kong’s Securities & Futures Commission (SFC) for registration, and is hopeful they will be authorised by the end of the first quarter 2011.
As such this product is not yet publicly available in
In Singapore it is available to accredited investors, while in Taiwan a Luxembourg-domiciled vehicle needs to have a one-year track record before it can be registered for retail investors.
Lippens notes that Pictet’s high-dividend strategy has returned 7.6% since inception in 2005, against a 3.8% return for MSCI World as at the end of October 2010. “And it did it with a volatility that was 3% lower,” he adds.