Latest news with #Questor
Telegraph
2 days ago
- Business
- Telegraph
This trust's dividend has beaten inflation for a decade – but its share price needs a boost
Questor is The Telegraph's stock-picking column, helping you decode the markets and offering insights on where to invest. The FTSE 100 is in the midst of a record-breaking year. After posting desperately poor returns for what felt like an eternity, it has made several new all-time highs during 2025. Indeed, it appears as though investors are finally beginning to realise that a globally-focused index that trades at a discount to its peers is likely to be a worthwhile prospect. Of course, the chances of the FTSE 100 posting further record highs may seem somewhat distant amid an ongoing global trade war that could yet heat up after an extended pause. This may prompt many investors, particularly those seeking a reliable income, to determine that now is an opportune moment to exit UK large-cap shares while they trade at more generous price levels vis-à-vis their recent past. In Questor's view, though, long-term income investors are being more than fully compensated for the heightened risk of elevated volatility over the coming months. The index, for example, offers a dividend yield of 3.4pc – this is 2.8 times that of the S&P 500. The FTSE 100 also remains cheap relative to other major large-cap indices, with many of its members offering significant long-term capital growth potential, as well as dividend growth, amid the current era of monetary policy easing that is taking place across several developed economies. Therefore, sticking with UK-focused investment trusts such as Schroder Income Growth could prove to be a sound long-term move. It has an excellent track record of dividend growth, with shareholder payouts having risen in each of the past 29 years. Given the scale and variety of geopolitical challenges experienced in that time, it seems to be well versed in overcoming periods of heightened uncertainty. The company's dividends, furthermore, have increased at an annualised rate of 11.3pc over the past decade. This is 50 basis points ahead of annual inflation over the same period, thereby meaning the trust has met its aim to provide positive real-terms dividend growth. And with a dividend yield of 8pc, it offers a substantially higher income return than the FTSE 100 at present. The company also has a solid long-term track record of capital growth, thereby meeting the other part of its aim. Its net asset value (Nav) per share has risen at an annualised rate of 11.3pc over the past five years. This is 50 basis points ahead of the FTSE All-Share index, which is the company's benchmark. Given that its shares currently trade at an 8pc discount to Nav, they appear to offer good value for money and scope for further capital gains over the long run. Of course, a gearing ratio of around 11pc means the trust's share price is likely to be relatively volatile, especially given the aforementioned elevated geopolitical risks. However, given Questor is highly optimistic about the stock market's long-term growth potential, leverage is likely to prove beneficial to overall returns in the coming years. A glance at the weightings of the trust's major holdings may also suggest relatively high share price volatility lies ahead. After all, its five largest positions account for 28pc of total assets, with its portfolio amounting to a relatively limited 45 holdings. However, given the FTSE 100's five largest members account for 31pc of its market capitalisation, this column is not overly concerned about the trust's concentration risk. Moreover, well-known FTSE 100 stocks that are fundamentally sound dominate its major holdings. They include AstraZeneca, Shell and National Grid, with the trust adopting a bottom-up approach that seeks to identify market mispricings when selecting stocks. Since being added to our income portfolio all the way back in December 2016, Schroder Income Growth has produced a capital gain of 18pc. Although this is four percentage points behind the FTSE 100's rise over the same period, which is undoubtedly disappointing, there is scope for index-beating performance as its current discount to Nav likely narrows, the benefits from sizeable gearing in a rising market become more apparent and its focus on fundamentally sound firms catalyses its performance. As well as offering capital return potential, the trust remains a worthwhile income purchase. Its relatively high yield, potential to deliver inflation-beating dividend growth and excellent track record of consistently rising shareholder payouts more than compensate investors for what could yet prove to be a highly volatile and uncertain second half of 2025. Questor says: buy Ticker: SCF Share price at close: £3.12
Telegraph
3 days ago
- Business
- Telegraph
The healthcare sector is unloved – this trust is a prime example
Questor is The Telegraph's stock-picking column, helping you decode the markets and offering insights on where to invest. Questor believes the healthcare sector is looking unloved at the moment. Sven Borho, the co-manager of Worldwide Healthcare Trust, the largest investment trust focused on the sector, agrees. In fact, he thinks the sector has been out of favour for most of the past decade. Borho puts the blame for this squarely on the US debate around drug pricing, and while Questor agrees that it has had a big impact on sentiment, so too has the shift from the low inflation/low interest rate environment that prevailed before 2022. While there had been mutterings about drug prices for a long time, it was a tweet by Hillary Clinton in September 2015, who was then on the campaign trail, that sparked an upset in the sector. She was promising to tackle price-gouging in the speciality drug market, which set the ball rolling on a series of measures from both sides of the US political divide. Recently, this has culminated in President Trump's May 2025 executive order aimed at bringing US prices for patented drugs down to the levels charged in other countries. Last week's threat of a 200pc tariff on imports of drugs manufactured outside the US is another complicating factor. However, Borho feels that investors have tended to be overly negative in response to threats to control drug prices. He also observes that, historically, Republican presidents have been good for the sector. The Trump administration's choices for the heads of the various Federal healthcare bodies may have been controversial, but Borho's sense is that bodies such as the Food and Drug Administration (FDA) are becoming more efficient. In recent years, the trust's high exposure to biotech companies has weighed on its performance. As outlined in this column's recent appraisal of RTW Biotech Opportunities, the biotech sector suffers not only from political pressures but a low sentiment from an investor base currently wary of loss-making and unproven companies – unfortunately, the bread and butter of the biotech industry. Nevertheless, Borho is keen to stick with this approach as he believes that, over the long run, capturing the benefits of innovation is key to generating outsized returns. He points out that biotech companies were responsible for almost two thirds of all clinical trials that began last year and most – 85pc – of the novel products approved. At the same time, many big pharmaceutical companies face the prospect of lucrative products coming off patent and these companies need to acquire promising biotech businesses to maintain their revenue lines. Relative to its benchmark, Worldwide Healthcare is underweight big pharma, which was 40pc of the MSCI index at the end of June but 18pc of the trust's portfolio – it had a corresponding overweight exposure to biotech. However, there are also exciting developments in areas beyond biotech. Over Worldwide Healthcare's latest financial year, some of the strongest contributors to its returns were medical equipment companies, including Boston Scientific and Intuitive Surgical. Boston Scientific has been making great strides in the cardiovascular field, while Intuitive Surgical's da Vinci robotic surgery equipment is delivering better surgical outcomes for patients. Medical technology and devices accounted for a third of the trust's portfolio at the end of June. Worldwide Healthcare turned 30 in April, and was one the best-performing trusts over that period, offering a total return of about 4,000pc. However, over the past five years, the trust has lost money for shareholders. Unsurprisingly, that has put pressure on its share price discount to net asset value. The board says that it will buy back stock when the discount is wider than 6pc, but for most of the past 12 months the discount has been in double digits, which opened the door to activist Saba to build a 5pc stake in the trust. The board has stepped up the pace of share buybacks and both the discount and Saba's stake appear to be coming down now. Questor agrees with the manager that there is plenty to get excited about in the healthcare sector over the next few years. Borho foresees a time when most cancer is treated as a chronic disease and much is curable. He predicts advances in the area of neurodegenerative disease such as Alzheimer's and Parkinson's to help improve and extend lives and hopes new gene therapies will cure rare diseases. He also thinks that artificial intelligence will help guide diagnoses, relieving pressure on GPs. Other trusts with a similar remit have done a better job of navigating this difficult period for the sector, so the big question is whether Worldwide Healthcare is the best way to take advantage of this theme. While the jury is out, the successful history of the trust can't be ignored. Questor says: hold Ticker: WWH Share price: £3.07
Telegraph
11-07-2025
- Business
- Telegraph
A changing fiscal world should be salve for this popular painkiller giant
Questor is The Telegraph's stock-picking column, helping you decode the markets and offering insights on where to invest. Consumer goods company Haleon has experienced a difficult set of operating conditions since its demerger from GSK in July 2022. The FTSE 100-listed owner of popular healthcare-related brands such as Sensodyne, Panadol and Voltaren has had to contend with a period of elevated inflation across developed economies that has put severe pressure on disposable incomes. Alongside this, a restrictive monetary policy has further dampened the spending power of consumers by acting as a drag on the economy's performance and wage growth. Consumers have, in some cases, traded down to cheaper alternatives or reduced their consumption of branded products. Still, the stock has delivered a 26pc capital gain since Questor tipped it as a 'buy' during December 2022. In doing so, it has beaten the FTSE 100 index by 10 percentage points. Haleon has not previously featured in our wealth preserver portfolio. However, it becomes the latest addition because of its increasingly upbeat outlook amid falling inflation and monetary policy easing. While inflation could remain sticky across developed economies in the short run, it is widely expected to moderate so that it consistently meets central bank targets over the medium term. This should prompt further interest rate cuts that, alongside the impact of recent monetary policy easing, boost wage growth and lead to improved spending power among consumers. In turn, this is likely to prompt reduced price consciousness that provides consumer goods companies such as Haleon with greater scope to raise prices in order to boost profit margins over the coming years. Of course, this process is likely to be very gradual in nature. Time lags following interest rate cuts could mean the company's financial performance remains rather lacklustre in the short run. Although its latest quarterly trading update was in line with previous expectations, organic revenue growth (which excludes the impact of acquisitions and disposals) amounted to just 3.5pc. For the full year, the company is on track to meet previous guidance – however, it expects organic revenue growth of only 4-6pc, albeit with a faster pace of increase in organic operating profits. Next year, though, the company is forecast to post a double-digit increase in earnings per share. Given its excellent competitive position as a result of having a wide range of strong brands, Questor expects further upbeat profit growth over the coming years as trading conditions continue to improve. Acquisitions could act as a further catalyst on Haleon's bottom line and share price. It recently completed the purchase of the remainder of its Chinese joint venture, which increases its exposure to what remains a highly attractive long-term growth market for consumer-focused companies. With Haleon in the midst of a £500m buyback programme set to be completed this year, its share price could experience further support in the short run. Of course, some investors may argue that an improving operating outlook has already been priced into the company's shares. They currently trade on a forward price-to-earnings ratio, using current year forecasts, of around 20. Although this is significantly higher than a figure of 15.5 at the time of our 'buy' recommendation in December 2022, the combination of an increasingly upbeat growth outlook, sustainable competitive advantage and sound finances means the stock is worthy of a premium valuation. Indeed, its net gearing ratio amounts to just 49pc. Net interest costs, meanwhile, were covered over seven times by operating profits in its latest financial year. Both figures suggest Haleon is well placed to make further acquisitions, as well as ride out potential economic difficulties over the short run. Notably, the prospect of increasingly protectionist trade policies could weigh on both its financial performance and investor sentiment towards cyclical sectors. This company is set to release interim results later this month – it would be unsurprising if its share price becomes increasingly volatile over the coming weeks. Questor, though, has a firmly long-term perspective. Therefore, the potential for paper losses does not dissuade us from using existing cash generated from previous sales to complete the notional purchase of Haleon in our wealth preserver portfolio. Overall, it is a high-quality company that is well placed to capitalise on the current era of persistent interest rate cuts and modest inflation.
Telegraph
04-07-2025
- Business
- Telegraph
How the very best companies survive the toughest economic times
Questor is The Telegraph's stock-picking column, helping you decode the markets and offering insights on where to invest. Even the very best companies experience highly challenging periods. A solid balance sheet, a clear competitive advantage and a sound long-term growth strategy may define a high quality firm, but this does not shield a company from difficulties – such as a tough industry outlook or deteriorating economic conditions. However, in Questor's view, such companies are likely to come good in the long run. Ultimately, their sound finances mean they are well placed to overcome a temporarily weak operating environment, while their strong competitive position typically results in a growing bottom line. This standpoint is a key reason we have stuck with beverages company Fever-Tree, despite its hugely disappointing share price performance since being added to our Aim portfolio in October 2023. At their lowest ebb, the firm's shares traded 37pc down on our notional purchase price. Although they have subsequently risen, a paper loss of 3pc still represents a highly inadequate return – especially when the FTSE Aim All-Share index has risen by 15pc over the same period. Of course, Fever-Tree has had to contend with extremely difficult trading conditions in recent years. Elevated inflation meant that its costs surged higher, thereby squeezing profit margins. A rapid rate of price rises also put pressure on disposable incomes, which weighed on demand for discretionary products and prompted some consumers to switch to cheaper alternatives or reduce consumption. Now, though, sticky inflation is widely expected to give way to a sustained period of modest price rises over the medium term. Not only could this put less pressure on disposable incomes, it may encourage further monetary policy easing that boosts wage growth. The end result could be greater spending power among consumers that prompts higher demand for the firm's products. Fever-Tree is well placed to take advantage of improved operating conditions. Its recently released trading update confirmed it retained its dominant market position in both on-trade and off-trade in the UK. It also made market share gains across all of its key regions in the latest financial year. Alongside strong brand loyalty, this suggests it has an excellent competitive position that could provide scope for margin growth over the coming years. For the current year, the firm's trading update stated that it remains on track to post a low single digit rise in revenue and a 12pc earnings before interest, tax, depreciation and amortisation (Ebitda) profit margin. This latter figure represents a 170 basis point decline versus the prior year, which means the company's bottom line is due to fall by around 18pc this year. However, it is then forecast to post a 19pc surge in earnings per share next year, as well offering scope for further profit growth over the coming years, amid an improving operating environment. Clearly, risks such as an ongoing global trade war could weigh on the company's financial performance. Although the firm's trading update suggested the impact of US tariffs is set to be largely mitigated over the long run – for example, by production being relocated to the US – increasingly protectionist policies may still dampen the wider consumer outlook and lead to deteriorating investor sentiment towards cyclical stocks in particular. Given the firm has a net cash position of around £84m, it appears to be in a strong position to overcome inherent volatility in the global economy – and with the company's strategic partnership with Molson Coors still in its relative infancy, the stock's risk/reward opportunity appears to be favourable on a long-term view. Fever-Tree's market valuation is likely to be considered a red flag by some investors. It currently trades on a forward price-to-earnings ratio, using the current year's prospective decline in earnings, of 40.8. This is significantly higher than the ratings currently applied to other global consumer goods companies that offer lower levels of risk as a result of their greater diversification, size and scale. However, in Questor's view, Fever-Tree still offers investment appeal. The company has an excellent competitive position that is likely to prove highly beneficial during an upcoming period of modest inflation and interest rate cuts. Its expansion into new geographies and product segments also means it is gradually becoming a more diverse business. With a net cash position, a sound strategy and upbeat growth prospects, it remains a high-quality company that is worth sticking with for the long term. Questor says: buy Ticker: FEVR Share price at close: £9.38
Telegraph
25-06-2025
- Business
- Telegraph
It's time to tune out the market noise and focus on your portfolio
Questor is The Telegraph's stock-picking column, helping you decode the markets and offering insights on where to invest. Market noise has been at maximum volume over recent months. Constant updates regarding a highly fluid global trade war, wider geopolitical risks including conflict in various regions and rapidly evolving economic news may understandably have left many stock market investors feeling somewhat dazed. In Questor's view, it is imperative to keep abreast of developments but not allow news flow to dominate investment decisions. Otherwise, investors may find they continually switch between a bullish and bearish mindset that leaves them struggling to determine exactly what course of action to take when seeking to generate a high return on their capital. Indeed, the stock market's track record shows it has always ultimately recovered from even its very worst downturns. Long-term investors, therefore, should not give too much credence to market noise – even when it is painfully loud. Rather, they should periodically seek to gain perspective on their portfolio's prospects by considering whether they are still invested in the right assets, geographies, sectors and, crucially, the most attractive companies. For example, this column firmly believes that equities offer a relatively attractive risk/reward opportunity at present. Sticky inflation is likely to dissipate over the medium term so that price rises consistently equal central bank targets across developed economies. This should allow policymakers to implement further monetary policy easing.
