Down 13.2% over one year against a 31.8% drop for the FTSE All-Share, Robin Hepworth has done a good job of limiting losses at the Ecclesiastical Higher Income Fund. He piled into Singapore dollars and Japanese yen in late 2007, and stayed well clear of miners and financials.
But he’s not staying cautious. In fact, he’s buying China again, after wisely selling out in the third quarter of 2007. “The market has fallen 60% in Hong Kong, so earnings have gone from 35 times to ten-12 times. On valuation grounds the market looks like good value.” Indeed, as long as you stay away from exporters, “Asia is the one bright spot in the world economy”, he says.
Looking for firms with a domestic focus, he’s started buying Scud Group, which makes replacement batteries for mobile phones. “The Chinese don’t throw away mobiles, they keep them. There’s a more active market for replacement.” Trading on two to three times earnings, it has a strong cash position and should benefit from the installation of 3G-mobile technology in China next year. “It will require a big increase in battery power. More juice means more demand long term.”
He’s also bought corporate bonds, “where the risk of default is more than priced in”, and GlaxoSmithKline, as pharma “yields are quite high. These are well-capitalised companies with excellent track records and strong balance sheets. People don’t stop taking medicines because times are tough”. What’s more, they should increase dividends by 5%-10% this year. Overall, “for those looking for a more cautious long-term holding, the fund has proven itself a strong choice”, says Christopher Traulsen on Morningstar.
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Ecclesiastical Higher Income Fund
top ten holdings
| Name of holding | % of assets |
|---|---|
| Treasury 4.5% Gilt 07/03/13 | 13.5 |
| Treasury 8% STK 2015 | 10.5 |
| Roche Fin Eur 5.375% SNR UN 29/8/23 | 2.2 |
| NT GRD Electricity TR 2.983% GTD I-L 8/7/18 | 2.1 |
| General Accident PLC 7 7/8% CUM IRRD PRF | 1.7 |
| GlaxoSmithKline | 1.5 |
| Huadian Power International Corp | 1.5 |
| Nat Grid Gas 4.1875% I-L BD 14/12/22 | 1.3 |
| Treasury 2 1/2% Index-LInked STK 2016 | 1.3 |
| Marks & Spencer GP 5.625% NTS 24/03/14 | 1.3 |