CT UK Equity Income

CT UK Equity Income is managed by the highly experienced Jeremy Smith. He looks for unloved companies listed on the London Stock Exchange, with the ability to sustainably grow their dividends. The fund is unconstrained and has a ‘contrarian value’ bias. Jeremy looks for hidden gems and businesses with long term potential.

Our opinion

Jeremy is an extremely experienced manager, and he has a very similar style to Richard Colwell, who ran the fund for a number of years before Jeremy took over. There has been a lengthy and successful transition of responsibilities. The fund has a patient high-conviction approach and has proven to be extremely consistent over many years. We are confident that Jeremy can continue to deliver solid results. The fund does have a style bias, and this will impact how it performs in different markets.

Company description

Columbia Threadneedle Investments is a leading global asset management company, owned by the US financial services firm, Ameriprise Financial (NYSE: AMP). It offers a broad range of actively managed investment strategies and solutions covering global, regional and domestic markets and asset classes. These include equities, fixed income, multi-asset and alternatives, as well as specialist responsible investment capabilities and a comprehensive suite of solutions. The firm has an international presence spanning 19 countries across the UK, Europe, US and Asia. Following the acquisition of BMO Global Asset Management (EMEA) by Ameriprise Financial in 2021, and the integration of BMO GAM into Columbia Threadneedle Investments, all BMO and Threadneedle funds were renamed with the ‘CT’ naming convention in July 2022.

Fund manager

Jeremy Smith has more than 20 years’ experience in fund management. Jeremy previously worked at Schroders and then Neptune where he managed UK equities. He joined Columbia Threadneedle in 2015 as head of UK equity research. He runs several UK equity funds and has research responsibility for the oil services and support services sectors. Jeremey holds a BA in History and is a Chartered Management Accountant (ACMA). Jeremy became lead manager of this fund in November 2022.

Jeremy SmithFund manager

Investment process

This is a contrarian fund that identifies undervalued stocks by looking at the general macroeconomic environment but also using stock selection. Jeremy is extremely experienced and manages the fund in a very similar way to his predecessor. He avoids speculative stocks, even when they are fashionable and have short-term momentum. Instead, he looks for unloved companies with the ability to sustainably grow their dividends. Jeremy believes in being patient and not over-trading. He embraces the ‘think active, act lazy’ philosophy, which has been a consistent feature of this fund.

The team pays particular attention to the implications of change at the stock, industry, sector, regional and macroeconomic level, and has found that analysing these implications consistently highlights mispriced opportunities. The team is particularly interested in companies whose profitability has fallen below the historic average. Valuation is extremely important.

Stocks fall into three risk buckets: defensives, average risk and higher risk. The team is pragmatic when it comes to risk management. It is not anchored to price targets. Once the portfolio is built Jeremy is patient as it can take years for contrarian calls to work.

Jeremy is fairly unconstrained in how he puts the portfolio together. There are no restrictions on the size of company he can invest in, though he will keep the portfolio predominantly in large cap companies. The fund’s best hunting ground is typically the bottom of the FTSE 100. Stock selection will drive the fund’s composition, meaning it will be Jeremy’s best ideas, rather than any benchmark weights, although the income mandate will affect sector allocations. Sector allocation has been consistent, with very little in technology companies and large weights in industrials. This is to be expected with Jeremy’s contrarian approach and the fund’s need to produce an above average income. The final portfolio will have a maximum 60 companies.

ESG

Columbia Threadneedle has a firm-wide approach to considering ESG factors. It has a universal process embedded across all its strategies which provides a proprietary ESG score for each stock. This is performed by the independent Responsible Investment team that prepares its own detailed analysis on each stock from an ESG perspective. By having a specialist team dedicated to this, the analysis drills down on every aspect of ESG and the team is not distracted by financial factors.

Industry standard frameworks, such as the Sustainability Accounting Standards Board (SASB), are used, as well as guidance from the Taskforce on Climate Related Financial Disclosures to help build models. This score is then provided to the equity analysts and managers who use it alongside their fundamental analysis to assess companies. The score will also be used as a basis from which to engage with the respective companies on any issues identified.

The requirement for income means Jeremy will be prepared to take some ESG risk in industries that have challenges. However, these will be in firms that are improving their profile and are consciously tackling their ESG issues rather than ignoring them.

Risk

The fund is likely to perform better in value markets. The fund is likely to have a domestic bias, and therefore will also likely perform better when the UK economy is performing in line with, or above, its global counterparts.

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