January 31, 2009
By Neesa Moodley-isaacs
Prudential Dividend Maximiser Fund
Raging Bull award for the Best Broad-based Domestic Equity Fund – the top-performing fund on straight performance in the domestic equity general, value and growth sub-categories over three years to december 31, 2008
Certificate for the Best Domestic Equity Value Fund – the top-performing fund in this sub-category on straight performance over three years to December 31, 2008
The Prudential Dividend Maximiser Fund, a value fund that targets shares that earn good dividends, has yet again produced a stellar performance, with a return of 14.08 percent a year over the past three years.
The return over the same period from the FTSE/JSE All Share index, the benchmark for the general equity, value and growth sectors, was 8.92 percent a year.
In 2006, the Dividend Maximiser Fund also won the Raging Bull Award for the Best Broad-based Domestic Equity Fund and the certificate for the Best Domestic Equity Value Fund.
The fund's managers, Ross Biggs and Marc Beckenstrater, apply two key criteria when investing in stocks. The first is to invest in companies that offer a dividend yield higher than that of the market, and the second is to ensure that the dividend yield grows at least in line with the market going forward.
The second criterion is applied in order to avoid companies that show an apparently attractive yield, but that is not sustainable.
Biggs says over the past year the fund has tried to invest in stocks, such as SAB Miller (globally), Spar and Tiger Brands (locally), that are likely to weather market conditions.
"Earlier in 2008, we were overweight in selected stocks in the information technology sector as it was one of the only sectors across local and international markets that was in a net cash position. This is certainly a good position to be in when credit is expensive. It provides IT companies with the ability to continue to pay increasing dividends and increases the likelihood of making undervalued acquisitions," he says.
For example, the fund held Didata and Datatec. Biggs says for Datatec, the fund paid a price-to-book value of one, which means it paid only for the net assets of the company, via the company shares. He says Didata was also undervalued and in a strong cash position, and it stands to benefit from the deregulation of the telecommunications industry in South Africa.
Biggs says 2008 was characterised by volatility not seen in decades, and forced selling by funds appeared to be evident in the market. "In such times, investors in plain vanilla, or general equity, funds that have a long-term investment horizon, such as the Prudential Dividend Maximiser Fund, are presented with some very good opportunities and can profit from short-term focused and forced sellers," he says.
The fund's positions in SAB Miller, British American Tobacco, Tiger Brands and Pick n Pay have been increased over the past six months because the managers were able to buy these stocks at low prices.
Biggs says there are currently many companies on the market that are still reporting profits substantially in excess of where fund managers would consider their normal margins to be.
"Such companies are also likely to be paying higher dividends. However, we need to bear in mind that there is a very real possibility that the dividends declared will decline as profit margins go down," he says.
Biggs says the consensus within the industry is that overall earnings growth for this year is likely to be flat, with a decline in resources and very muted growth in industrials and financials.
  
 
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