JOHCM’s Beagles hails revival as vaccine lifts ‘value’ stocks


Clive Beagles has hailed the rally in ‘value’ stocks that has powered his JOHCM UK Equity Income fund to a 27.6% return so far this month, helping to pare losses from a grim year.

Beagles, who runs the £1.9bn fund with James Lowen, has endured a torrid run of performance as the value companies he favours, which have long lagged growth stocks, were hit hard by the coronavirus pandemic.

Despite the surge in these out-of-favour companies in November, driven by breakthroughs in the development of a Covid-19 vaccine, Beagle’s fund remains 18.5% down this year.

‘We’ve had a good couple of weeks but we’ve had some pretty awful time before that,’ Beagles. ‘So I’m not being too triumphalist.’

The fund’s difficult 2020 weighs on Beagles and Lowen’s three-year performance figures, with an 11.7% loss wider than the average 4% fall for funds in the Investment Association’s (IA) UK Equity Income sector.

Only over five years does the fund’s return beat the sector average, at 17.2% versus 15.2%, while over 10 years the managers, once Citywire AAA-rated, have returned 96.9% versus the 82% average for the sector.

‘We have begun to see a change in direction and the vaccine is the trigger for that,’ said Beagles.

‘We don’t want to get carried away as the stocks move up but we have been saying that some of our names could go up 50% to 100%. Some names have already got into that territory but a lot haven’t and we think [the rotation] will be a two, three, four-year process, not a two-to-three week one.

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‘We have got a lot of ground to make up but the process has clearly begun.’

Beagles also warned that it will be a slow road back to full dividend strength, with  some sectors using the pandemic to scale back distributions permanently.

The manager has previously warned investors to expect a fall of between 45% and 55% in dividend income from his fund. While Beagles acknowledged that the ‘outlook has begun to brighten’, he stuck with that forecast.

‘The path back will take time and we are looking over two years [for a return],’ said Beagles, adding that dividends would be ‘80% of the way back’ by the end of 2022.

‘It will not be 100% because some industries have used [the pandemic] as a point to change capital allocation permanently like big oil.’

BP (BP) halved its dividend in August after posting a $6.7bn quarterly loss while in April Shell (RDSB) reduced its payout for the first time since World War Two.

The oil giants, which features in the top 10 holdings of two-thirds of funds in the IA UK Equity Income sector, are unlikely to return to those high dividends as they accelerate their plans to move towards renewable energy.

The return of banking dividends, which have been suspended on the orders of the regulator over fears they will need cash to cover a spike in loan defaults, would also help boost income.

Beagles said Brexit, rather than the pandemic, is the main driver in the banking sector.

‘One big sector where Brexit matters is banks,’ he said. ‘If we get a deal then the bank dividend ban will be removed and that is a key trigger point and it will have an impact on how quickly dividends come back in the financial sector.’

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