The investment team behind the WS Canlife Diversified Monthly Income Fund looks constantly for the relative value opportunity in each sector. Jordan Sriharan, fund manager, multi-asset, shows how this approach has worked for specific holdings across different asset classes.
Equities: GlaxoSmithKline
Pharmaceuticals company GlaxoSmithKline (GSK) is a name we have held in the portfolio since inception. It is one of a small number of companies held that has been able to deliver both strong capital gains and a stable dividend stream. A company that has grown through acquisition over time, GSK has demonstrated lower cyclicality whilst also being one of the higher dividend payers in the FTSE100. It offers a pleasing counterpoint within the portfolio to other mature, higher income payers in the UK index, often banks and energy companies, that are generally fairly sensitive to market cycles.
While we have been positive on GSK throughout the life of the holding, the 2022 spin-off of Haleon (the consumer healthcare product business) has created a more focused company. Also since Emma Walmsley took over as CEO in 2017, more money has gone into research and development (R&D). This has resulted in more pipeline milestones for its drug catalogue, which is widely seen as the best by breadth and depth amongst the large pharmaceutical companies.
Fixed income: UBS
In March of 2023, UBS announced the acquisition of Credit Suisse. Whilst controversial at the time (because it was orchestrated by the Swiss government as a means of rescuing Credit Suisse, which it had deemed ‘too big to fail’ ), the deal allowed UBS to broaden out its business lines, cementing its place as a high-quality European bank.
In November 2023, UBS issued additional tier one debt (AT1s), a type of perpetual debt (a bond paying an indefinite income) at a coupon of 9.25% in US dollars, for a business that we internally rate AA- with no significant risk of downgrade or upgrade. Investor faith in AT1s had been crushed by the Swiss government, which permitted losses for Credit Suisse AT1s as part of the takeover, a legal ruling never seen before. However, UBS has a successful track record of restructuring in the aftermath of the financial crisis and, given how well-capitalised the bank was, we saw its issuance of AT1 debt as deeply attractive.
The bond was hugely oversubscribed and eventually issued at par of 100, but we were able to participate in the deal given our strong fixed income capabilities. Today the bond price is 107, which equates to a capital uplift of 7%, plus the coupon of 9.25%, all within the first year of ownership.
Convertibles: Apollo
Apollo Global Management is another example of a holding that has generated a robust income and capital return for the fund. An asset management business predominately focused on private assets, both equities and fixed income, it also operates a Retirement Services segment through the acquisition of Athene in 2022.
Traditional asset managers’ share prices have fallen in recent years, driven by lower fee income that has been pressured downwards through both regulation and the rise of passive funds. However, Apollo has a more institutional client base and a private asset approach, allowing the company to generate a much higher fee income compared to the traditional asset manager model, and is thus a much more attractive option in the long term.
The fund first invested in the equity of Apollo in January 2020 and saw the share price rise over the following period. In September 2023, the company issued a convertible bond (a fixed-income security that can be converted into a predetermined number of shares) with a coupon of 6.75%. Given the income opportunity, we sold down our Apollo equity holding to purchase the convertible bond, which has since risen materially in price.
Important information
The value of investments may fall as well as rise and investors may not get back the amount invested.
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