
Stephen Anness
Head of Global Equities
In this video, Stephen Anness discusses the Global Equity Income Share Portfolio process, its performance and market outlook.
A key element of our investment philosophy is that we are most likely to deliver consistent performance if we focus on quality, cashflow and price. This is because we regard these as things we can control.
Quality is embodied in businesses that are strong enough to thrive through the economic cycle. Such companies tend to have competitive advantage, strong fundamentals and no obvious Environmental, Social and Governance (ESG) risks.
Cashflow is the best measure of a business’s health. It allows a company to pursue opportunities that enhance shareholder value, such as paying dividends, buying back shares and paying down debt.
Price is about being able to buy a business at a significant discount to its intrinsic value. Ultimately, it determines long-term investment success.
In searching for stocks capable of delivering on all three of these considerations, one of the opportunity sets we keep a very close eye on is dividend compounders. These companies, which comprise more than 70% of our portfolio, have an impressive track record of dividend payment and a growing yield.
Multinational private equity firm 3i is a classic example. Based in London, it has its origins in the Industrial and Commercial Finance Corporation, which was set up by the Bank of England after World War Two to provide long-term investment funding for small and medium-sized enterprises.
What particularly attracts us to 3i is its biggest holding, Action, which is Europe’s fastest-growing non-food discount retailer. We see this as nothing less than one of the best businesses on the continent – a sparkling investment gem that happens to be hidden within a financial company.
Action’s corporate motto is “Small prices, big smiles”. This seems like a useful ethos at the best of times, let alone in the midst of a cost-of-living crisis, and the business’s performance clearly demonstrates an ability to tick our preferred boxes.
Action currently has more than 2,300 stores across the Netherlands – where it was established 30 years ago – Belgium, France, Germany, Luxembourg, Austria, Poland, the Czech Republic, Italy, Spain and Slovakia. It opened 140 new stores in 2016 and 230 in 2018, and it plans to open 400 a year by 2026. We estimate it could take almost 20 years to saturate Europe – so there is a very long runway for growth.
Payback on a newly opened store is achieved within a year. This represents a pretty spectacular indication of cashflow, to say the least. Meanwhile, dividend growth over the past five years has been in excess of 10% per annum.
Twelve new distribution centres were opened in 2022 alone. The business employs 80,000 staff, has an impressive focus on sustainability and is racking up an ever-expanding array of Retailer of the Year awards.
Action obviously plays a major role in 3i’s own healthy dividend yield, which stands at 2.4%. More broadly, 3i’s portfolio of assets is well managed by a team that recognises shareholder interests and the importance of cost control. We have added to our position over time and been rewarded for it.
Head of Global Equities
In this video, Stephen Anness discusses the Global Equity Income Share Portfolio process, its performance and market outlook.
Stephen Anness is Head of the Henley-based Global Equities team. He and his team manage a range of global equities products including:
Invesco Global Equity Income Fund (UK)
Invesco Select Trust plc Global Equity Income Share Portfolio
To find out more about the team and the other global equity ICVCs and SICAVs they manage, please visit the team page here.