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On 31 October 2020, BL Equities Dividend celebrated its 13th birthday, and 3 years under the management of Jérémie Fastnacht. We took the opportunity of this double anniversary to interview the fund manager.
You have now been managing this fund for three years, what did you change in the day-to-day approach?
Nothing particularly fundamental. I apply BLI's proven approach, which I have been convinced is the right one for a long time: investing with discipline and not being distracted by the indices and fashionable trends, solely in high-quality companies with a real long-term vision, and at a reasonable price.
One of BLI's great strengths is that each member of the team respects this approach, which is also reassuring for everyone investing in our funds.
With the current COVID-19 crisis forcing many companies to cancel their dividend and with the dividend indices down sharply, does this asset class still make sense?
We take a very different approach to dividends. We don't trawl through the major indices looking for stocks posting the highest dividend yields.
First, we look for investment opportunities exclusively from our very selective universe of top-quality companies, then we only accept those that offer attractive, sustainable and growing dividends.
Of the thousands of listed companies across the world, only a few dozen pass our very strict quality filters, allowing them to be included in our investment universe.
This leads to solid fundamentals.
Despite this being one of the worst crises in history, in the first half of 2020, the companies held by BL Equities Dividend are on average posting positive organic growth, and even a marked increase in cash flows.
Of the 33 companies currently in the fund, only two have reduced their dividend per share this year. The remaining 31 companies have maintained or, in the case of a large majority, even increased their dividend per share by an average of 6%.
More generally, aren't traditional dividend-paying companies outdated at a time of rapid technological changes, a proliferation of brands and new generations of consumers?
First and foremost, we don’t judge an investment on the basis of its popularity on social networks or in the press, or on flows and share prices changes in the short term; our judgement is based on fundamentals, assessed with a long-term perspective.
The companies we select are already dominant but they remain agile and have strong competitive advantages to defend themselves, both in-store and online: substantial marketing, research and innovation budgets, vast and efficient distribution networks, and near-symbiotic relationships with major retailers.
For example, Unilever reported a 50% increase in online sales in the first half of 2020, thanks in part to partnerships with amazon.com and walmart.com, and with the Chinese firms alibaba.com and JD.com. The group has recruited more than 1,500 ‘digital specialists’ over the last two years, including the head of amazon.com's ‘Core Consumables’ division.
L'Oréal saw its nine ‘billionaire brands’ post record growth last year. The group reported online sales up more than 60% this year.
Nestlé has doubled the online sales of its coffee division in the United States, in particular thanks to its Nespresso subscription system and its Starbucks licence.
In some countries Domino's Pizza Enterprises offers the possibility of ordering pizzas by simply sending a smiley face via a smartwatch, which will be delivered within five minutes by a delivery rider on an electric bike.
Givaudan, the world leader in flavours and fragrances, or SGS and Intertek, leaders in testing, inspection and certification, are reaping the rewards of shorter innovation cycles, escalating numbers of products and brands, and evolving standards.
Microsoft, Accenture and TSMC, three companies that we have held for many years, are at the heart of digital and technological developments.
These are just a few examples, but I believe that the companies we select are far from being outdated.
For example, Unilever and Nestlé, which we have held for over a decade, are often described as boring but have nevertheless offered a total return well above that of the global equity index over the last 10 years, despite a very bullish market.
What about performance, both in the short term and the longer term, which is ultimately what investors are most interested in?
Our fund was launched at the end of 2007. Very few funds in its category have gone through two major economic crises and show similar risk-adjusted performance, both short and long term.
Given most investors’ risk aversion and the asymmetry between losses and gains, at BLI, we believe it is more important to withstand difficult markets than try to capture the full extent of periods of euphoria.
We can’t make promises for the future but, to date, BL Equities Dividend has acquitted itself favourably during every significant equity market downturn.
Is the current environment conducive to investing in your fund?
I sincerely believe in the timeless advantage of our approach.
Investors often waste valuable time trying to find correlations that might have worked in the past, predict the outcome of political events, anticipate macroeconomic data, forecast interest rate movements, or worse still, guess how the markets (and hence millions of investors) will interpret them.
It is unrealistic to hope to succeed reliably and repeatedly.
It seems to us more sensible, whatever the context, to invest in the type of business that we select: high-quality companies, protected by strong competitive advantages, generating a high return on capital employed and strong cash flows, with profitable growth potential and a healthy balance sheet, and paying attractive, sustainable and growing dividends.