The RWC UK Focus fund has returned 25 per cent in the past three years, compared to 16 per cent for the average fund in the IA UK All Companies sector in the same time period.
Innes commented that while his main interest as an investor is in capital growth, rather than income, ‘we like shares that have a yield, as we think it is a sign of value.’
Lloyds Banking Group revealed a 2.75p dividend in its most recent set of results.
He commented, ‘it is hard for banks at the moment, dealing with regulatory changes, but the management have taken the right approach, of simply getting on with it. We also have shares in Barclays, but they seem to want to fight the regulators, and they keep getting clobbered.’
Innes continued, people forget that Lloyds Banking Group is actually performing very well as a business. That has sort of been disguised by the PPI and other fines, but it looks like we are getting to the end of that, to get through the PPI and to see the true value of the business.’
Of Barclays he said, ‘the UK business and the Barclaycard business are very valuable. They are restructuring the company, we think the investment bank will come back, it’s not that hard to fix it, you just pay the people less and get them to work harder, you get a ludicrous situation where people working in investment banks complain they only got paid £2 million last year! It’s not that hard to fix an investment bank, and they have a vital role, keeping the money pumping through the system.’
Of Tesco he commented, ‘it is a stock we are interested in because it has gone through a tough time, and those are the sorts of companies we like. But one of the things we have got right in recent years is we don’t like sectors where there is a “space race”, a pattern of continued capacity coming into the market. We own DFS, a furniture business that benefited from lots of rivals going bust during the recession. But for the food retailers, conversely, the recession encouraged more capacity into the market, from the discounters Aldi and Lidl, and then we had the internet increasing capacity again, through Ocado, and now you have firms such as Poundland taking market share. There has been a cultural shift since the recession, people no longer say they only shop at {a particular high end store} they are almost proud to say they shop at Aldi or Lidl.’
He continued, ‘in order to invest we would want to see capacity coming out, we are seeing the companies stop building the big hypermarkets, but we might need to see some of them close.’
The veteran investor concluded his comments on the sector with the remark that, ‘in terms of valuation, we are seeing them write down the value of some of the assets they have, and there may be more of that to come, so we can’t trust the price to book ratio.’
Innes is keen on shares in oil company Royal Dutch Shell, commenting, ‘as the share price was falling, we kept buying more. We take the view that the oil price is more likely to go up rather than down from here, the yield is still very good, and we think the acquisition of BG Group will benefit them, and they got it at a good price.’
He is also invested in the mining companies Glencore and BHP Billiton. He commented, ‘we never liked them in the past, we never understood why a bubble was happening. Now I think it’s more stable, there is no better cure for low prices than low prices.’
Innes continued that the behaviour of mining company chief executives has improved, they are no longer debt junkies. ‘If you look at Glencore, the trading business they have is actually performing quite well, and the management are big shareholders. He added that Rio Tinto is a firm that had a ‘lunatic’ in charge, who was intent on rapid expansion but that the new management are more reliable.
[Source:-Whatinvestment]
