Richard Marwood co-runs the Silver-rated Royal London UK Equity Income fund with Martin Cholwill. With around £2.2 billion in assets, the fund has a fairly concentrated portfolio of 49 holdings.
Marwood defines it a “classic income fund, with a very vanilla approach and no derivatives". He aims to spread risk across different sectors and companies. “We are just stock pickers. We try to pick the right companies, rather than taking a view of the world,” he adds.
The fund produced annualised returns of 6.7% over three years and yields 4.3%.
Buy: Signature Aviation (SIG)
Marwood first bought shares in Signature Aviation back in 2011, when it was called BBA Aviation – he likes to hold shares for a long time. The company has recently been rebranded and went through some transformation. Marwood has been adding to his position in the company, which now accounts for 2.4% of the fund's portfolio.
In December, Signature completed the sale of its aerospace manufacturing business, Ontic, for a hefty $1.3 billion. Shareholders enjoyed their share of the spoils as the firm paid out $835 million via a special dividend.
Signature's main business is providing support services at airbases, including fuelling, ground handling and amenities for pilots and passengers. It also owns numerous small airbases across the US - "perfect if you are flying around on a small private jet and you need your pilot to rest and fill the paperwork," says Marwood. He likes that Signature has been streamlining its business in recent years, selling off various aviation-linked arms to focus on airbases.
The share price soared from 78.7p to 316p in November as the firm conducted a share consolidation as part of its rebrand, replacing every five existing shares with four new ordinary shares. The share price has stayed relatively stable since, currently trading at 320p with a yield of 4%. Marwood says: "This is a reflection of the way it has been restructured and revalued."
He adds: "We expect to carry on holding the stock for a long time - we don't sell things very aggressively."
Hold: Cineworld (CINE)
The fund has invested in cinema chain Cineworld since 2012, a group with more than 9,500 screens across 10 countries in the UK, Europe and US, where it acquired the Regal Cinema chain in 2017. “We increased the position in the company 'sizeably' when the company got the Regal Cinema deal,” says Marwood.
Cineworld continues on its acquisitions charge and recently announced plans to buy Canada’s Cineplex, which would make it the largest cinema operator in the world.
But this has been a controversial deal, says Marwood - the firm already has high debt levels and some of its shareholders have expressed concerns about taking on more. Shares have fallen from 257p to 193p over the past year, pushing the yield up to a chunky 8%.
Still, Marwood retains his conviction in the company: "It generates lots of cash and the managers are good operators - they can improve the chains they are buying and will pay down the debt.”
He meets with the management team twice a year, discussing issues affecting the cinema industry such as how many people prefer to stay home and watch Netflix rather than go to the cinema, and the relationship between the cinema and the studios making the movies. They also talk about highly anticipated films that are due for release, loyalty schemes and cinema snacks.
Sell: Dunelm (DNLM)
As a long-term investor, Marwood doesn’t like to ”dip in and out of stocks", so it is not that often that many stocks are sold out of the portfolio. However, like any good investor, Marwood often rebalances his investment portfolio and takes some profits from his top performers.
One of these is Dunelm, a UK retailer that sells home-related items such as bedding, towels and cushions. The stock has been in the porfolio for 14 years but the position has recently been trimmed. "We didn't sell because we dislike it," insists Marwood. Instead, the move as to crystallise some profit after a strong run of performance - shares are up fom 685.5p to £11.20 in the past year alone.
He adds: “If you run the clock back about 12 months, everyone was negative about retailers and the UK. But this company turned out to be one of the best performing shares in the market last year, returning over 100%.”