Weekly Thoughts 07 September 2013

While looking over the year-to-date on a few client’s portfolios this week, I reflected on a large increase in the quarterly dividend distribution that the Marriott Dividend Growth Fund enjoyed a while back. So yesterday morning I called the one fund manager directly on his cell phone: ‘Hi Lourens,’ I said, ‘I noticed an 18% increase of the dividend distribution of this fund 1st Q to 2nd Q this year. Tell me about it’. We had a good conversation about the underlying companies and what he is compelled to do with the dividend flows and that it doesn’t necessarily mean the same could happen next quarter. This fund is also the SA Equity portion of the Prudential and Worldwide Funds.

This increase in dividend I speak of above is an increase in income, it is not capital growth. And this is what it’s all about. Income. To only watch a Marriott fund for capital growth is to completely and utterly miss the point and function of the asset manager. To look at and compare a Marriott fund to other funds on capital growth or price return is to again, completely miss the point. I had a good chat with a client last month over lunch, helping him to understand that when he opens his Marriott statements, to NOT look at what the capital value is. Because this has no bearing on his income and is irrelevant in the sense that we’re not likely to ever sell out of his funds. Rather, to look at the number of units and to see if this is increasing. Then also to look at the distributions being paid and to see if this is increasing – over the long term.

I have a debit order into the above fund too. I will never liquidate this account of mine. I will never sell out of it. The function of it is to build units, which are holding good underlying corporate shares, in order to pay me a dividend income one day as part of my retirement income. Hence the capital value is absolutely irrelevant. I actually want and indeed need, some months of depressed stock markets in order to buy extra, cheaper units in those months. There will be very few, if any, clients that I have invested into a Marriott fund with the point of liquidating that fund. It will be to build and then provide income.