Measured to the end of the third quarter of 2010, the Marriott Dividend Growth Fund is the best performing general equity fund over a three, two and one year period.
The fund also displays the lowest risk in its sector as measured by volatility over a three year period.
The result is a fund that has generated the highest returns for investors, while at the same time exposing its investors to less risk than any other general equity fund. This occurrence is rare as it contradicts one of the fundamental principles of modern portfolio theory – the concept that more risk equates to more reward. When one considers that the primary benefit and focus of the fund is to provide investors with a reliable and growing, tax free dividend income stream, the Marriott Dividend Growth Fund has certainly been the place to be for equity investors.
Since the beginning of 2003 investors in the Dividend Growth Fund have experienced an average distribution growth of 12.5 percent each year for seven years. This growth has translated into a 78 percent real increase in income (over and above inflation) for those retired investors who are dependent on the income produced by the fund to fund their lifestyles.
The approach adopted by Marriott in achieving these results is summed up by the company as Income Focused Investing.
This style is based on the business truth that the value of a company grows over time at the rate at which its profits grow. In the same way, the value of an investment, over time, grows at the rate its dividends grow. Having identified businesses or investments that produce predictable and reliable income streams, a security is only added to the portfolio at a sensible time. According to Marriott a sensible time is when the income yield is at an acceptable level, usually above the long term average for that particular company.
A great deal of time and effort goes into understanding the competitive advantages that lie behind businesses with reliable and growing dividend track records to ensure an investment made in that company today will benefit from those advantages into the future. Examples of the competitive advantages emphasised within these underlying companies include barriers to entry, pricing power, control over different key areas of the supply chain and brand power. These factors enable the businesses within the fund to retain and grow their customer base, protect margins and increase their dividend payments regardless of the economic circumstances.
Although income focused investing is a solid long term investment strategy, the value of investing in companies with the ability to reliably grow their earnings and dividends is most often brought to the fore in a challenging economic environment. It is during such times that companies with sustainable competitive advantages distinguish themselves from the rest.
While it is Marriott’s opinion that in general the current South African equity market is expensive this fund has been carefully positioned and should prove relatively resilient during periods of market volatility. Investors in the fund will also continue to benefit from a reliable dividend income stream that will grow in excess of inflation – a benefit that could be appreciated by retired investors looking for income.