In this monthly update, Peter Switzer talks to Shawn Burns, Portfolio Manager of the Switzer Dividend Growth Fund (SWTZ) about why 2019 was a great year for a dividend seeking fund like SWTZ.

With the coronavirus spooking markets, Shawn explains how the outbreak may present buying opportunities for the fund.

Video Transcript

Here’s our monthly catch up with Shawn Burns, the portfolio manager of the Switzer Dividend Growth Fund. Shawn, how’s the fund going?

Very good. Very well, Peter. Very good. It’s been a very strong month. In January, the fund was up over 4%. Stronger markets, but it’s good to see that the fund’s participating in that given that quality and value skew.

Of course, we should always make the point that last year was a sensational year for a company that goes looking for dividends. We’ll just talk about that for a minute.

I think that we went after a lot of franked dividends last year. We participated in a lot of off market buy backs, which means you sell the shares, but you’re at below market value. But you get, what you get is almost full franked dividends for the whole component of the receipt. So that pushed up our franking a lot last year, and our unit holders benefited from that. I think that this year probably goes back to more normal levels. We’re not seeing as many of those, nowhere near as many, this year. So we’ll get a more normal run rate.

And because a lot of stocks are now more expensive because the market’s done well, the percentage yield comes down as well, doesn’t it?

Yes. As the market goes higher, dividends aren’t climbing by the same rate, so there’s yield compression going on, which isn’t what people want to hear, but it’s actually a challenge in this environment. Low interest rates. Low yields.

And with you being very conservative, you’d be happy with a 4% return plus franking credits plus any capital gain on top? I’d prefer you say five or six, but… That’s probably a fair call. Aim for four, but you might do better. But is that kind of what we’ve been thinking about?

That’s exactly right, Peter. Yeah. I think that we are still chasing franking. There won’t be as much around this year as last year because the lack of share market buy backs, but we are trying to keep that up as high as possible and not increase the risk in the portfolio as well. That’s important that we don’t just increase the yield up, increase risk of the portfolio without paying for it down the track.

Yes, right. The year ahead, what do you reckon?

I think that we continue to grind higher as long as liquidity and inflation stays benign. We will get, from time to time, we’ll get issues that’ll wobble the markets a bit. I think, you know, we are staying conservative, so we’ll keep in contact with the market. We won’t go out the risk curve and risk the fund from that point of view. We will chase dividends.

OK. Coronavirus, is that going to be an impact?

It has already impacted some stocks in the fund. Not that many, but there is some impact especially in the travel, casino type areas. We’re watching it closely. It looks like, you know, you’d have to say that things are not going up exponentially. It’s going up at a steady rate, so… Yeah, as far as I’m in the camp that you look for buying opportunities out of this.

Okay. And reporting season’s started. Have there been any sort of positive or negative sellings you want to talk about?

It’s been a good start, it’s early days. For Switzer Dividend Growth Fund, there’s been a couple of rates that are reported. GPT, Dexus. Both above what we were expecting slightly. You don’t get too much excitement out of REITS. But they’ve been good, and we’ll see how how things pan out for the rest of the results season.

Shawn, thanks for joining us.

Thank you, Peter.

That’s Shawn Burns, the portfolio manager for the Switzer Dividend Growth Fund. Thanks for joining us.