With such tricky market conditions it can be tempting for investors to change their philosophies, but Mr Hutchins points out the team looks for companies that can grow, that make sustainable high returns on capital, and which are very cash generative – three things that “won’t change”.
“People shouldn’t expect us to invest in capital-hungry cyclical sectors that don’t have that ability to compound cashflow and therefore dividend distribution,” he says. “[But] there’s no point being the best business in the world that generates cash and can grow, if you’re paying a price that’s implicitly too high and it can’t live up to the growth embedded in the share price.
“That’s one of the things I like about income investing. By trying to maintain and attract a dividend yield, you’re implicitly buying companies on higher free cashflow yields and recycling out of companies with low free cashflow yields.”
But he admits “it takes some bravery to do that” as not every investment house can run money this way. “There is that obvious tendency of fund managers to chase performance and therefore deviate from their investment philosophy, and suddenly buy banks or oil companies or miners because they can perform and hurt your relative performance over a short period of time. It is so important that we stay true to our investment philosophy because ultimately that’s what our clients want,” he explains.
“If we can be clear to our clients and explain why we’ve underperformed and performed in the way that we have, that’s what makes those long-term relationships much better.”
Looking ahead Mr Hutchins seems content with his current portfolios, noting that for him “building the quality income franchise within the quality team at Investec is all I want to do for the long term”.
With UK and global already under his belt, is it time to focus on a different region? The manager appears reluctant, however, suggesting it is “not for me, but within the team; never say never”.
He continues: “We could in time think about having a quality Asian fund if it so works, and maybe in time get some more regional income products, and I’m more than happy to consult on that and give guidance with my experience. But running UK and global is all I need and it keeps me busy enough.”
