BL Equities Dividend

Year to date performance overview

Note: Performance data net of fees (B units) in euros at 31 August 2022. Past performance is not a guide to future performance. References to a market index or peer group are for comparison purposes only; the market index is not mentioned in the sub fund's investment policy.
Sources: BLI/Lipper.

Since the beginning of the year, in a context of generally bearish markets amid geopolitical tensions, uncontrolled inflation and tighter monetary policies, the Fund has managed to limit losses in line with its historically conservative approach to markets.

Over the longer term, the Fund also demonstrates its ability to generate consistent performance with low beta, controlled volatility and contained drawdowns.

In a particularly tense market environment amid the Russian Ukrainian war, inflationary pressures and tightening monetary policies on both sides of the Atlantic, value stocks, particularly the Energy and Financial sectors, performed well while quality growth companies that we tend to favor were heavily penalized.

While, in line with our investment horizon, we still prefer to focus on the long-term performance of our strategy, we can highlight several factors that may have favored the Fund's relative outperformance during this period:

• Others may have a less strict definition of ‘Quality’ or lack valuation discipline. BL Equities Dividend invests only in quality companies, but with strict valuation discipline. In addition, stocks offering attractive and sustainable dividends are, by definition, trading at a reasonable valuation, which may currently be an additional advantage.
• For the majority of the Fund's companies that issued a financial publication for the first quarter of 2022, the figures and outlook remain solid overall despite the difficult environment, with average organic revenue growth above 10%;
• Finally, the weighted average turnover exposure of BL Equities Dividend companies to Russia and Ukraine is limited to less than 2%, and none of them is based or listed on a stock exchange in one of these countries.

Overall year to date, both sector allocation and individual stock selection contributed positively to relative performance.

Portfolio positioning

At the end of August, the Fund was invested in 30 companies; the top 10 represented 44.5%.

On the same date, BL Equities Dividend offered a gross weighted average dividend yield of 2.6% (cash taken into account). Companies currently held in the Fund have an average gross dividend per share compound annual growth rate of 8% over the past five years.

In line with its investment strategy, the Fund is heavily exposed to the Consumer Staples (40.2%), Industrials (16.7%) and IT (9.9%) sectors while it does not invest in the Energy sector and has very low exposure to the Financial sector (1.3%).

Recent transactions

In a context of significant market volatility and wide disparity between investment styles and individual securities, the activity within the portfolio has been larger than usual in order to seize opportunities (while remaining below what is generally done in the industry...).

The manager cleared his investments in Servern Trent (Great Britain, Utilities - Water Management) and GlaxoSmithKline (Great Britain, Health - Pharmaceutical) for valuation reasons.

For the same reasons, he reduced his exposure to various stocks such as Swedish Match, National Grid, PMI, Hershey and PepsiCo.

In addition, the Fund Manager sold his position in Visa in August on suspicion of a lack of vigilance regarding access to its payment network by websites to illegal activities.

While no new company had been in the portfolio since October 2020, the Fund Manager initiated two new positions in February: S & P (United States, Financials) and Hermès (France, Consumer Discretionary). Both meet our preferred investment criteria, namely an established brand with long term competitive advantages, strong pricing capacity and significant free cash flow generation potential combined with a reasonable valuation and an attractive, growing and sustainable dividend profile.

In addition, the manager took advantage of market volatility to increase the weight of certain positions: L'Oréal, Lvmh, Givaudan, Vinamilk, SGS, Kone, CNR, Microsoft, National Grid, Accenture, United Utilities and Coloplast.

Conclusion

A large majority of companies owned by BL Equities Dividend have already issued a financial publication for the second quarter of 2022. Despite the highly volatile environment, figures remain solid, with comparable organic revenue growth averaging +11%.

It should be remembered that the best protections against inflation are a high gross margin, a strong pricing capacity and a significant return on invested capital; points on which BL Equities Dividend companies stand out favourably compared to the average of the companies making up the major stock market indices.