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1. How did the High Yield Equity Fund perform in 2023?
One might have thought that a global equity income strategy in a strong up market of 20%+ driven by a narrow set of tech stocks of whom the majority don’t pay dividends, alongside a global banking crisis, would have indeed lagged its benchmark considerably given its typical hunting grounds of outside of technology and in financials and consumer staples sectors. However, the High Yield Equity Fund delivered a gross return of 21.1% vs. its MSCI ACWI benchmark of 18.1%. Performance versus peers has been exceptional over the short and long term. The High Yield Equity Fund is first in its peer group across 1-year, 3-year, 5-year and 10-year time horizons.
High Yield Equity Fund posts strong returns vs benchmark and peer group1
| 20231 | 3 Years Ann | 5 Years Ann | 10 Years Ann | |
| High Yield Equity Fund | 21.1% | 16.1% | 15.4% | 11.9% |
| Benchmark (MSCI ACWI) | 18.1% | 10.2% | 13.3% | 11.2% |
| Position vs peers2 | 1 | 1 | 1 | 1 |
Warning: Past performance is not a reliable guide to future performance.
2. What were the key drivers of strong fund performance in 2023?
Our investment approach aims to deliver growth in income and capital by looking beyond traditional income sectors, like Consumer Staples, Financials and Energy. Instead, we focus on sectors like Industrials and Technology, where we find resilience and compelling income growth opportunities. In 2023, Broadcom and NXP Semiconductor, both in the Technology sector, were top contributors to performance. Wolters Kluwer and RELX, two information service providers in the industrial sector, were also top contributors. However, UnitedHealth and Raytheon Technologies were the leading detractors. Despite short-term headwinds, UnitedHealth’s long-term earnings power remains intact.
3. What’s your outlook for 2024?
We evaluate our portfolio based on fundamental cash flow drivers and the price we have paid for it. We remain cautiously optimistic for 2024, but no one can precisely predict what will happen. We bought Microsoft and Broadcom in 2022 when the market shunned them but saw value and confidence in their business models. In 2023, we looked to more defensive sectors for opportunities like consumer staples and healthcare. In 2024, our investment approach will continue to focus on companies of substantially better quality than the market at a cheaper price based on fundamentally driven free cash flow metrics.
High Yield Equity Portfolio Statistics 31 December 2023
| Portfolio | MSCI ACWI | |
| Dividend yield (FY1) | 2.5% | 2.0% |
| 5-year dividend growth | 10% | 4% |
| Return on capital | 17% | 6% |
| Return on equity | 27% | 14% |
| Operating margin | 20% | 13% |
| Net debt/EBITDA | 1.3x | 1.6x |
| P/E 2022 | 19x | 18x |
| Cash Flow Conversion | 108% | 75% |
| Free Cash Flow Yield | 5.6% | 4.1% |
1. Source: Longboat Analytics to 01 January 2024. The returns quoted include the reinvestment of net income and are net of trading costs, but before deduction of annual management charges and other insurance contract charges and as such do not represent the returns on insurance contracts linked to these funds. Details of all charges for a particular product are available on request.
2. Included in the High Yield peer group are New Ireland Goodbody Dividend Income 6, New Ireland High Yield Equity Fund, Zurich Life Dividend Growth, Irish Life IL/Setanta Equity Dividend, New Ireland Davy High Yield, Standard Life Diversified Income, Irish Life (Ind) IL/Setanta Income Opportunities, Cantor Fitzgerald Global Equity Income.
Warnings
| Warning: Past performance is not a reliable guide to future performance. Warning: The value of your investment may go down as well as up. Warning: The income you earn from this investment may go down as well as up. Warning: If you invest in these funds you may lose some or all of the money you invest. Warning: These funds may be affected by changes in currency exchange rates. Warning: If you invest in a pension, you will not have access to your money until you retire. |
