As a father to six children, Adrian Frost, 51, never knows what he’s doing from one weekend to the next. “But I wouldn’t have the audacity to naff off for eight hours on a Saturday.” As such, says the manager of Artemis Income Fund, “I’m bad at golf”.
Luckily, he’s much better at picking stocks – his fund yields 6.2% and is down a respectable 23.1% against a 30.9% drop for the FTSE All-Share over 12 months. But before income and equity funds can rebound, he reckons the corporate bond market has to recover. And that could happen sooner than you think.
Frost cites last week’s four big corporate bond issues from Centrica, BASF, BT and Vodafone. “The bad news is that they were all trading at 400 basis points above gilts.” However, “they were all substantially oversubscribed. There is money out there.” At the moment it’s stuffed “under mattresses and cat bowls”. But once investors realise they are getting poor returns from ultra-safe assets, he thinks they’ll start climbing back into the market.
So, where to look for value? “If debt gets cheaper”, indebted companies such as Imperial Tobacco will do well. However, with debt refinancing costs still high, Frost tips telecom, pharma and consumer stocks, which should be able to keep paying dividends. He focuses on how long it would take a company to pay off debt if it didn’t pay a dividend. “If it can pay off its debt in five years it is financially strong. If it would take 20 years, that’s a different matter.”
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Artemis Income Fund top ten holdings
| Name of holding | % of assets |
| Royal Dutch Shell B Ord | 6.10 |
| BP | 5.70 |
| GlaxoSmithKline | 5.40 |
| AstraZeneca Plc | 5.00 |
| Vodafone Group | 4.90 |
| Centrica | 4.20 |
| RWE AG (NEU) | 3.90 |
| National Grid | 3.70 |
| Koninklijke Kpn NV | 3.20 |
| HSBC Holdings | 3.20 |