The £861m fund has more than quadrupled in size since the start of last year, propelled by the growing taste for multi cap income investing, along with the fact it led the sector for returns in 2013..
Many of the stocks it holds are listed on the fast-growing AIM market which has seen a surge in interest since tax breaks were announced last August. This year is the first investors can hold the shares directly in their ISA. Lall says that the growing importance of AIM as a source of dividends stems from the improving economic cycle and the amount of cash that companies have to spend.
“I don’t think it’s because of a surge in retail interest, what’s driving it is improving cash generation,” he said.
“The reason is they have been trading better. Balance sheets are strong and they are very cash generative.”
“It’s a marked shift from four or five years ago when everybody was worrying about balance sheets and deleveraging.”
“The strong companies can afford to reinvest and increase dividends.”
Lall talked FE Trustnet through four of the positions in the Marlborough Multi Cap Income fund.
Jarvis Securities
“One that I think is really interesting although it only has a 3 per cent yield but is growing with room or surprises is Jarvis Securities,” he said.
“It’s done really well off the back of changes in ISA rules, there are good valuations coming through.”
“The recent extension to ISAs will be a benefit to them. They’re involved in IT and cutting the cost of transactions, share custody services etc. to other brokers. They’re in a really cute part of the value chain”.
Jarvis Securities is trading on a heady P/E [price to earnings ratio] of 22.8 times, and Lall recognises this as a risk.
“You have to ignore the P/E ratios, because of ongoing changes at the company and investment,” he said.
“I am surprised it’s carrying on on its own and a bigger firm hasn’t made a bid for it – although I’m happy this hasn’t happened.”
Data from FE Analytics shows that the stock has almost doubled in value over the past year, rising 99.09 per cent.
Performance of stock vs FTSE All Share over 3yrs
Source: FE Analytics
It has almost quadrupled in value over three years and has a yield of 3.31 per cent.
Helphire Group
Lall also likes Helphire Group, a stock trading on a forward earnings multiple of 13.5. The yield based on the new dividend policy will be 5.89 per cent he notes.
The company runs accident management services for no-fault motorists, offering them cars to drive while their claims are being settled.
It has a national network, Lall says, and cash on the balance sheet with a dividend covered by free cash flow and very good relationships with major insurers in the sector such as esure and companies such as lookers.
It is another stock to have more than doubled over the past year, although it received a setback in December.
Performance of stock vs FTSE All Share over 1yr
Source: FE Analytics
This followed news that the competition commission is looking at the organisation of the industry. Currently insurers arrange the cars for the motorists, and the competition commission is looking at the possibility of capping the prices that can be charged for this service. The report is not due until September, however.
Lall says that the company is a very cash generative business and has a shareholder base quite income focused, which explains the high dividend.
Solid State
At the smaller end of the spectrum, a company Lall likes is Solid State Supplies, a distributor of electronics parts such as semiconductors and other processing components.
It has a market cap of only £30m and is trading on a P/E of 16.22 with a yield of 2.47 per cent.
“It’s a very interesting company although its yield is not that high anymore,” he said. “It’s a little bit like [FTSE Small Cap stock] XPower, and is changing its mix of products. Sales are often third party as well as own brand.”
Data from FE Analytics shows that Solid State shares have risen 69.94 per cent in value over the past year as the All Share has made just 9.01 per cent.
Performance of stock versus FTSE All Share over 1yr
Source: FE Analytics
Hargreave Hale owns more than 5 per cent of the stock.
ISG
Lall also rates Interior Services Group, or ISG, which he says could appeal to investors looking for exposure to cyclicality.
The company refits and refurbishes property, and Lall says he approves of the way it has turned down difficult low margin construction work and focused on things like data centres for Google.
The company is becoming increasingly global-facing and selling more into the Middle East, too, he notes. In its most recent results it highlighted expansion into Brazil and South Africa.
Its order book in the Middle East rose to £28m from £20m with £23m to be delivered in the current financial year.
Share price growth has been good over a year, with returns of 114.51 per cent. However, this has slowed over the past couple of months.
Performance of stock vs FTSE All Share over 1yr
Source: FE Analytics
The shareholder register includes a number of well-regarded smaller companies specialists. Octopus holds 8.04 per cent of the stock, River & Mercantile 5.74 per cent and Liontrust 5.04 per cent.
Hargreave Hale itself holds 5.19 per cent and Investec 4.09, with Standard Life and Old Mutual also holding more than 3 per cent.
The stock is trading on a P/E of 12.94 and has a yield of 3.47 per cent.
