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Robin Geffen: Why Q4 2017 could be “traumatic” for UK investors

03 October 2017

The founder of Neptune and the manager of its UK income fund warns of a faltering economic backdrop for the UK and how this could impact dividends from the broader market.

By Lauren Mason,

Senior reporter, FE Trustnet

This year’s final quarter could prove to be “traumatic” as headwinds in the UK economy unwind, according to Neptune’s Robin Geffen (pictured), who warned investors to diversify their dividend sources as much as possible.

The founder of Neptune, who heads up the four FE Crown-rated Neptune Income fund, also expects further “unpleasant shocks” to come from large constituents of the FTSE and said markets are likely to react more and more negatively to unfavourable news.

“The final quarter of the year could be fairly traumatic – we are likely to see a rate rise in the US and we are convinced we are going to see further problems and issues to do with the UK economy,” Geffen said.

“Diversify your dividends – watch out for [funds with] barbell [approaches] because dividend risk is very real.”

Over the course of 2017, the manager pointed out that several income-paying blue chips – including AstraZeneca, Pearson and Provident Financial – announced profit warnings and the performance of their stocks subsequently suffered.

Over the medium term, he believes this could become more commonplace across UK companies and, as such, urged investors not to rely on a handful of high-yielding stocks to generate a majority of their income.

“There are a lot of funds out there operating a barbell approach with their top 10 delivering 40 to 50 per cent of the yield of the total fund,” Geffen explained.

“We operate a very simple fund, using 33 evenly-weighted stocks. Everything contributes a portfolio yield – there are no 5, 6, 7 or 8 per cent holdings in the fund. When cash comes in, I top up the underperforming stocks.”

This process has worked well for the fund over three years, having achieved a top-quartile total return of 32.79 per cent compared to its average peer and benchmark’s respective returns of 27.62 and 27.37 per cent.

Performance of fund vs sector and benchmark over 3yrs


Source: FE Analytics

In a bid to maintain this performance, the manager holds 18 per cent of the overall portfolio in US stocks and has just 17.1 per cent revenue exposure to the UK.

While he is negative on his outlook for the UK, he is positive on the economic backdrop for almost all other regions.

James Dowey, chief investment officer at Neptune, pointed out that the UK economy has faltered significantly since the start of 2017, with growth having fallen from 2.5 per cent to 1 per cent.

“Our view on the real-time data over the course of the third quarter is not an optimistic one. It doesn’t look pretty and we think that weakness is going to persist in the second half of the year when the GDP data rears its head,” he warned.

“This is a UK issue, the rest of the world is on a role – the US, the eurozone and Japan are all growing at around 2.5 to 3 per cent, EM [emerging markets] is flying.

“The UK issue is a Brexit issue and there are two factors in play.”

Firstly, the CIO said the consumer is in recession given the disparity between inflation and wage growth. He believes that this, combined with the fact banks are reining in their credit supply, could continue to squeeze consumers over the medium term.

“The consensus is still blissfully optimistic meanwhile,” Dowey continued. “The consensus forecast for 2017 UK is 1.5 per cent, the Bank of England 1.7 per cent.

“You will need a serious acceleration from the back-end of the year for these expectations to be met and we don’t think that’s going to happen. Things are going to get a bit worse, if anything, for UK growth.”

Secondly, Dowey said business investment has remained stagnant since the start of 2016, when Brexit-related uncertainty first began to rear its head.

“Brexit came and went and investment has flatlined since,” he explained. “This is on the basis of business confidence indicators – which look really ugly right now.”

Meanwhile, Dowey said the Bank of England is strongly signalling an interest rate hike at towards the end of the year.

Given inflation levels in the UK have been driven by the weak sterling and rising oil prices as opposed to domestic economic strength, he warned this is likely to be a policy mistake.

“You really need to get your magnifying glass out to see the contribution of labour to inflation right now in the UK. It is barely anything at all,” he explained.


Source: Bank of EnglandNeptune

“We think it’s a policy mistake, but our real concern is the implication of this move in regard the housing market.

“House prices in the UK are wobbly right now – we’ve had a good handful of down months on the nationwide house price index since the spring. That’s the first time we have seen something like that in about five years and there is no ‘Help to Buy’ scheme around the corner to push things up.

“You can see that consumer confidence and house prices move together; we’ve contended a big part of this relationship is that, as house prices go up and down, so does the perception of the health of the economy and also the perception of the stability of the household’s own finances.”

Despite the difficult backdrop, Geffen is nevertheless confident that he can maintain the fund’s performance.

“There is real resilience in the fund and I think we’re now in a good position to build on this solid foundation and deliver outperformance going forward,” he added.


Neptune Income has a clean ongoing charges figure of 0.83 per cent and yields 4.93 per cent.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.