David King, a seasoned investor with 40 years of experience, brings a unique strategy to the Columbia Flexible Capital Income Fund.
A Go-Anywhere Approach
Unlike most funds that have separate managers for stocks and bonds, King takes a different route. He embraces a go-anywhere approach that encompasses a wide range of securities, including junk debt and convertible securities. Instead of relying on asset allocation, King’s focus is on income securities.
Bottom-Up Decision Making
Rather than categorizing high-yield bonds as either good or bad, King and his team make bottom-up calls on individual securities. This approach allows them to carefully evaluate each security’s potential and make informed investment decisions. Currently, the portfolio consists of approximately 40% stocks, 40% bonds, and 20% convertible securities.
Consistent Performance with Room for Improvement
The fund has demonstrated commendable long-term performance, boasting a 10-year annualized return of 6.3%. This surpasses the average return of its Morningstar category by half a percentage point.
However, it is important to note that the fund has been slightly behind its benchmark in the past year. As of November, it remained flat, lagging behind by approximately six percentage points. King attributes this underperformance to the fund’s value and mid-cap stock orientation, which have not performed as well as the S&P 500 index.
King’s Preferred Sectors
Despite recent challenges, King sees potential in certain laggard sectors. He favors utilities, telecommunications, and real estate investment trusts as promising areas for investment within the fund.
Sources: Columbia Threadneedle Investments, Morningstar
Bullish on AT&T and Verizon
Introduction
High Dividend Yields
According to industry expert King, both Verizon and AT&T present favorable dividend prospects. Verizon has maintained its dividend without any reductions throughout its history, providing investors with long-term stability. Regarding AT&T, King firmly believes that the company has no reason to cut its dividend again. However, it is worth noting that its payout did experience a reduction of over 40% during its spinoff in 2022 when shareholders received a 71% stake in Warner Brothers Discovery.
While some investors may express concerns about the high dividend yield of Verizon, the company has recently raised its quarterly dividend slightly in September. This action marks the continuation of its trend of annual dividend boosts for the past 17 years.
Favoring the Utility Sector
King also expresses a preference for the utility sector, which has experienced a recent rebound alongside the strong rally in the bond market. He highlights two large-cap utility companies as his favorites – Duke Energy and Entergy. Despite a downward trend of about 10% this year, these companies offer a competitive yield of 4%. Additionally, King identifies UGI, a Pennsylvania gas utility, as one of his top choices. Although it is currently undervalued with a market value of $5 billion, UGI boasts an impressive yield of over 6%.
Focus on Boston Properties
Another sector that King favors is office Real Estate Investment Trusts (REITs), with Boston Properties standing out among the rest. Despite its stock price bouncing back by 35% from its lows, it remains below pre-Covid levels. However, King believes that the company, renowned for its extensive portfolio in major cities like New York, San Francisco, and Boston, possesses strong fundamentals. With its excellent buildings and a robust balance sheet, Boston Properties is poised for growth. Furthermore, the company offers a generous yield of over 6%.
