Clark (pictured), who runs around £811m in the two funds, says that both BP and Shell lack the production growth to be able to raise their dividends in the coming years and that the smaller BG Group is a better bet, despite its lower headline yield.
The manager also says that he is uninterested in Lloyds and Barclays, believing they will be unable to pay a decent dividend due to tight regulatory oversight of their sector. "We always look at companies that can provide a certain amount of growth as well and we have developed a position in BG Group even though it has a low yield," he said.
"The reason is production growth in BP and Shell is struggling, so it’s beginning to be very difficult for these companies to generate a much higher dividend in the next few years unless there’s a change in how the companies are run."
Clark’s view contrasts with that of The Share Centre’s Helal Miah, who told FE Trustnet last week that he rates both stocks.
Both have underperformed the FTSE All Share in the year-to-date, according to data from FE Analytics, while BG Group has forged ahead. It has made 28.58 per cent to the FTSE’s 19.65 per cent.
Performance of stocks vs index in 2013
Source: FE Analytics
Clark says that BG Group's better growth prospects make it far more appealing, despite its lower dividend. It is yielding just 1.37 per cent compared with 4.69 and 5.28 per cent for BP and Shell respectively.
"BG is different. It is a smaller company to start with and has expected production growth of 8 per cent a year from now until 2020."
"It’s driven by one asset and has growth in a sector where it’s hard to find. I expect significant dividend growth in 2016, 2017 and 2018."
Clark says he is also avoiding what he calls the "semi state-owned banks". A lot of retail investors have been tempted to look again at Lloyds and RBS after the Government began to sell its stake in the former, which has seen huge share price gains in the past few years.
"I think regulation will mean they will be restricted in practice from paying high dividends," he said.
The manager adds that he is also concerned about the prospects for energy utilities, and will be even more pessimistic if Labour wins the next election.
FE Alpha Manager Neil Woodford recently lambasted Ed Miliband for his proposed price freeze on energy firms, but Clark is more diplomatic.
"Energy companies like SSE and Centrica, we have to look at them because there’s political pressure," he said. "If Labour wins, it may not be possible for them to continue with their dividend policies."
Clark has retained positions in SSE, Drax, Centrica and National Grid, but he has begun to trim them at a smaller size and is keeping an eye on them.
The £608m Moneybuilder Dividend fund is currently yielding 4.1 per cent, according to FE Analytics.
Over the past three years it has made 43.29 per cent, ahead of the 39.78 per cent from the IMA UK Equity Income sector average.
The £205m Fidelity Enhanced Income, which uses covered calls to enhance the yield at the expense of capital growth potential, has made 34.59 per cent. It is yielding 5.22 per cent, the sixth-highest figure in the sector.
Performance of funds vs sector over 3yrs
Source: FE Analytics
Selling covered calls allows the manager to receive a premium in return for offering the right to buy one of his stocks from him at an agreed price in the future.
If the stock goes higher than that price, the manager has to sell it below its value. If it doesn’t, he simply pockets the premium and pays it out to investors.
Roughly 40 per cent of the income on the Enhanced Income portfolio is generated in this way, with 60 per cent derived from the yield on the underlying stocks.
Clark says it is a less risky way to generate a higher yield than buying high-yielding stocks themselves, which generally have to pay out a higher amount because of a weakness in their business.
The manager is also taking up a few positive contrarian positions. He says he sees a turnaround coming at Tesco which the market hasn’t priced in yet.
"It’s a strongly competitive business, it needs restructuring and I know that, but management is making changes," Clark said. "The market isn’t discounting the recovery I am expecting to see over the next few years."
The manager cites GlaxoSmithKline as another example, which was lambasted by Baillie Gifford manager Dominic Neary in a recent FE Trustnet article.
The company has a free cash-flow of 10 per cent, more than enough to cover its current dividend yield of 5 per cent, Clark says.
With valuations near to a 10-year low, the manager expects it to turn around in the coming years.
He has also been increasing his weighting to outsourcing security companies G4S and Serco, both of which have been in some turmoil recently.
Only this week the Serious Fraud Office opened a criminal investigation into the companies’ handling of tagging contracts for the prison service. Both companies have seen senior executives depart in recent weeks.
"I think they are at good prices and there’s a good chance the dividend will grow on both companies," Clark said.
The manager is cautious on the question of whether the country is seeing a genuine recovery, and he wants to see real wage growth coming through.
Fidelity Moneybuilder Dividend has ongoing charges of 1.2 per cent and Fidelity Enhanced Income 1.74 per cent. They both require a minimum initial investment of £1,000.
