David Kuo talks to Mark Slater.
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David:
This is Money Talk, the weekly investing podcast from The Motley Fool. I am David Kuo, and I am on record for saying that there are few sounds more pleasant than hearing dividend cheques hit my bank account, regardless of what is happening in the stock market. Now, someone I think who shares my love of dividends is Mark Slater of Slater Investments. Although Mark is the son of the legendary investor, Jim Slater, he has made a name for himself in his own right through his MFM Slater Growth Fund. He launched his MFM Slater Income Fund in September 2011, and I am delighted that he can join us today on Money Talk. Welcome to Money Talk, Mark.
Mark:
Thank you very much.
David:
Am I right in saying that you have a love of dividends as strong as mine?
Mark:
I don't know exactly how strong yours is, but I think they're very good things. They're not to be underestimated.
David:
I think we're coming up to this period of time when dividend receipts are at their most exciting, because it's during the summer months when I get most of my dividends. But I was at the launch of your fund last year, but for the benefit of our listeners who don't know about the MFM Slater Income Fund, can you tell us why you launched an income fund at this time?
Mark:
Sure. Our thinking was really driven, one, by the fact that our views is that equities give you yields which are very difficult to obtain elsewhere, and two, that carefully selected, I think these sort of income stocks can also offer capital growth. So we were finding good value, and we were finding a very attractive source of income, in a world where income is pretty tricky to obtain.
David:
So which one do you consider to be more important? – the income side, or the growth side?
Mark:
I think they're both important. I think, to put it another way, you wouldn't want to have a high yield, but give all the benefits back in capital losses. So I think it's important that the capital value proposition is pointed in the right direction, and there's something driving it. But our primary focus, when we screen for companies, is that they are paying a good dividend, and we're looking for dividends above average. Then it's a question of determining whether those dividends are sustainable. Normally, if a dividend is sustainable, it means the earnings are growing reasonably quickly as well; at least, they're growing. So I think almost by default, if one's looking for a reliable and sustainable and growing dividend, you're also looking for some element of capital growth, because you're looking at growing earnings.
David:
But is that from the perspective of a fund manager, or is that the perspective from an investor? – because if I were an investor, and I invest in a particular share, let's say William Hill, and that is paying me a yield of 6%; now, if I'm receiving a regular income from my William Hill investment, do I really care whether the William Hill share price is higher or lower, because all I care about is receiving that dividend cheque from them?
Mark:
I think they're connected, because if William Hill's earnings halved, then your dividend would be threatened, and so would the capital position. In other words, you'd probably lose half your money. So I think there is an inextricable link between earnings and dividends, so our focus, at the wide end of the funnel when we're looking at companies, we're looking at companies with decent yields, both historically and based on forecast, then it's a question of more qualitative work to understand the reliability of those dividends. If a dividend isn't well covered, for instance, then it's probably not going to be paid. If a company has excessive debt, so for instance, one or two of the bus companies have a lot of debt, First Group, being a classic example, has loads of debt. We don't own it, it's got a fantastic yield. The management have stated their aim of growing it at 8% or 10% per annum, I think 8% per annum, but there's huge debt, and we don't own it because we think there's a high probability it will be cut. I think, in looking for a sustainable dividend yield, you are inevitably looking at growing earnings, and if you're looking at growing earnings, you're likely to get capital growth as well.
David:
OK, now there was a time when people, if they wanted reliability of income, they would look towards bonds. But you say that bond yields are dangerously low?
Mark:
They are.
David:
Why is that, Mark?
Mark:
Well, there's a 30 year bull market we've experienced in the bond markets, and it's pretty long in the tooth. It may go on, but I think sovereign bonds today, prime sovereign bonds, are dangerous. You're getting practically no return on the money, the cash yield is negligible, and very vulnerable, in the event of inflation. Now, at the moment, there's a little bit, there's a flicker of inflation, but we know that central banks like to think inflation is something they can control. They've never succeeded in the past, so I'm not quite sure where this confidence comes from, and they have been creating an awful lot of money recently, and they're actually trying to create inflation. It makes sense they should want inflation, because we've got excessive debts all over the place. My view is inflation, when it comes, and it's very difficult to predict that, that inflation will be difficult to control, and the problem, I think, with sovereign bonds at the moment is, yes, they work in certain situations.
They worked very well last year, which was surprising to me and to others. But you can only invest in them, in my view, if you're nimble, and investors buying these things at the moment are the least nimble investors in the market, yet they're the big institutional pension schemes. They are hopelessly un-nimble. They're supertankers – they don't trade, yet they're buying instruments which could create a huge capital loss for them, and you've also got a lot of retail investors who might be very patient investors, who could have a very big headache as the result of buying these sovereign bonds. I think it's a tragedy in the making, and it's partly a function of regulatory stupidity; it's partly a function of financial repression, where authorities are almost forcing certain parts of the financial community to buy bonds. The banks and the insurance companies have to buy bonds, whether they like it or not. Accounting regulations force pension trustees to consider buying bonds. The wonderful expression is, matching your liabilities. It's a very bad joke, it's terribly sad. It's going to cause huge problems, I think. You've got people, they look at bonds as the safest part of their portfolio, and they're clearly not. It's only something, I think, people should consider at this stage in the bond/bull market, if they're prepared to move very, very quickly.
David:
But is then it also true that you are guaranteed to get your money back, if you put your money into bonds? – but if you put it into equities, you could lose a significant proportion of your portfolio?
Mark:
I think inflation is a very important part of the equation. Say we have 5, 6% inflation, which isn't terribly high historically, it's not off the charts, you will lose 5 or 6% per annum on a bond – it's guaranteed. You know that, as night follows day – that will happen. I think with equities, as long as inflation isn't excessive, and I think the sort of sweet spot is up to about 4%, equities tend to perform quite well in periods of lowish inflation, inflation higher than we have today, by the way. A level of inflation of 4% would, I think, cause a catastrophe in the bond market; the equity market would be fine in that situation. But sure, there's no guarantee with equities – there isn't a guarantee, but I think that's what investing is about. You have to look at the value proposition. You have, on the one hand, an asset which has enjoyed a 30-year bull market, where yields are at lows which we haven't seen for more than 100 years, and on the other side you have equity markets which have had one of the worst periods of ten-year returns in history. I read a very interesting piece of research the other day, it was actually a graphical thing, but I'll try and describe it. There was a graph showing the last four times that we had similarly poor ten-year returns in the equity markets in Britain.
The last four times pre-dated four golden periods for equities: the 1900s, the 1920s, the 1950s and the 1980s, and we've had a similar poor period of ten-year returns over the last ten years. It's the fifth time it's happened in 130 years. Now, I'm not saying history definitely repeats itself, and we will have a wonderful ten years ahead of us, but it's interesting. I certainly think the timing for equities today is better than the timing for bonds. On the one hand, you've got a coming out of the period of low returns; on the other hand, you've got a coming out of a period of exceptionally high returns, for 30 years. The risk of inflation is clear. It will happen – it's guaranteed. The only question is the timing. Now, if inflation kicks in in three years, then bonds might do well for another couple of years – they might, but again it comes down to timing. But if one isn't good at timing, and most people are not, then I wouldn't try and do it. I would just try and go for the value proposition you're more comfortable with, and tough it out. So that's certainly what I'm more comfortable doing.
David:
So can you understand why western governments are trying to create this artificial inflation? – because it is one way in which they can whittle down their national debt?
Mark:
It makes sense.
David:
If, for instance, the UK's national debt is one trillion pounds, at 5% inflation, at the end of one year it will only feel like 950 billion. Somehow we've magicked 50 billion out from nowhere, to pay down the debt.
Mark:
It makes sense.
David:
So therefore, it has to be done, doesn't it? So is it good for the nation, that we actually have inflation?
Mark:
I've got no problem with it. I think it's good for everybody, that we have moderate inflation, but the problem is that central banks are not very good at controlling inflation, and we've had an extraordinary, and the word unprecedented is bandied around quite often, but I can't think of a precedent, put it that way, for what's been happening in terms of quantitative easing and these sorts of things. The European Bank has its own version of quantitative easing.
David:
They call it LTRO – long-term refinancing operation.
Mark:
Yeah, it's the same thing.
David:
In America, they call it credit easing, and Operation Twist, but essentially it's the same thing.
Mark:
It's the same stuff, and when you get this money creation on a massive scale, in the end it gets out of hand. Now at the moment, it hasn't done. At the moment, I think a lot of central bankers are slightly concerned and puzzled that there hasn't been much of an impact, but it's going to happen – it will happen; then they'll try and control it, and it won't work. I'm not saying, by the way, that equities are without risk. I think for equities, you have to be prepared to embrace volatility, but if you are prepared to do that, you'll be much better off. Warren Buffett has a line, which he applies to equity markets, but I think it applies to everything: “If you invest at a time of cosy consensus, where everybody feels very confident, you pay a very high price for that comfort.” In other words, it's a rotten time to buy.
Now yes, bonds are safe in the sense that you get your capital back, but you don't get your money back in real terms necessarily, you just get your nominal capital back. With equities, you haven't got that guarantee. Equities at the moment are volatile – there are all kinds of risks out there, but they're pretty well known. I'm not a raving equity bull – I just think you're comparing one asset class that's highly compromised, ie government bonds, with an asset class that I think will be more reliable. It's a relative trade. I think you're better off seeking income from equities, but they're not without risk.
David:
OK, so let's have a look at your MFM Slater Income Fund. What criteria do you use for allowing shares to be included in your MFM Slater Income Fund?
Mark:
We divide the portfolio into three buckets. One bucket is made up of companies which are basically growth companies. They're not super-dynamic, they're growing steadily but very reliably. They very often have low PEGs. They're attractively prices.
David:
And what is a PEG?
Mark:
A PEG is comparing the growth rate with the PE, so what you really want is a growth rate that's higher than the PE. So if you've got a company on a PE of 10, and a growth rate of say, 12% per annum, then it's a PEG of less than one, which is attractive. Quite often, these companies will have very low PEs, and relatively low growth rates, but nonetheless attractive PEGs; often quite steady, sustainable businesses, and with a very nice yield thrown in, so that's one bucket. The second bucket is made up of companies where the yield is very reliable, and growing a bit, but not so dynamic, and the third bucket is made up of companies which have some degree of recovery potential, but where we feel that the earnings position has at least stabilised. So there's more risk in these companies, but we feel there's at least a degree of stability, while we wait for the recovery to come through.
David:
So how many companies in total do you have in your fund?
Mark:
We have about 60, at the moment.
David:
OK, so 60 companies in all, and I presume they're not all from the FTSE 100?
Mark:
No, and that's something that's distinctive. Most income funds nowadays tend to be made up of the usual suspects in the FTSE 100. If you look at the top ten holdings of the biggest ten income funds in Britain, there'll be a huge amount of overlap. They'll all have the BATs, and Shell and Astras, and all these sort of things, in very large sizes. Basically, they'll have them in the same weightings that the FTSE 100 has them – very big weightings.
Now, some of those companies are very interesting, and they're fine, but there are plenty of other fish in the sea. We own, for instance, Glaxo in our fund, and we're very happy to own it, but it's not a huge position. I think the focus that many of these other people have on the FTSE 100 is a function of size. They can't shift the money they're managing into anything else. We're fortunate in that we're relatively small, so we're able to do this. So we're looking at the entire universe, and 90% of the high-yielding stocks in the UK are outside the FTSE 100.
David:
Is that right?
Mark:
Something like that, yeah. So it makes sense, it's rather silly to exclude them. They're not all perfect, some of them are hopeless, but one should look around more broadly, and we do. So we're very much looking across the market cap spectrum, and we're typically 70%, I would say, outside the FTSE 100 at any one time – that's roughly where we are.
David:
So some people might say that, if you were to buy FTSE 250 shares, as opposed to the FTSE 100 shares, they are slightly more risky. So how do you protect against this downside risk of investing in the mid-caps?
Mark:
Well, I think there's two things. One is that, really for us, the key is value. I think an attractive valuation protects you against most things, and clearly we're doing a lot of qualitative work as well, so we're looking for good businesses that are just priced attractively with good yields. The other thing is a degree of diversification, so we don't take huge positions. Our position size is normally 2 – 3% in a company, so it's not huge. It's quite a broadly based fund, in that sense, much more broadly based than, for instance, the larger income funds around, which tend to have these sort of 5, 6, 7, 8% holds in the Shells and the Glaxos of this world. So we're reasonably diversified, and we're applying sensible criteria.
David:
OK, so would you look outside of the UK for investment opportunities?
Mark:
We don't, we do everything through a UK listing. So many of the businesses we own operate outside the UK, but their business is outside the UK, or at least a substantial part of their business. The average company in this country now is 70% overseas earnings, and I'd say we reflect that average.
David:
I have for myself an income portfolio, and the reason why I like income investing is that I don't have to do a great deal of tinkering with the shareholdings that I have. For want of a better word, how much tinkering do you do with your portfolio?
Mark:
Not a huge amount. If a share is weak, we still like it, we'll top it up, so we'll trade around positions. Similarly, if a company has a very strong run, we'll take a little bit of profit. But broadly speaking, we take a view, and we only really sell if we are wrong, in which case clearly we'll sell, or if we can do better with the money in something else.
David:
Yeah, now, one of the problems that people have with regard to pigeonholing shares is that a share can be both a growth share, as well as an income share at the same time, and people email me sometimes at the Collective, which is a service that we have for people to ask questions, and they say, “ David, is GlaxoSmithKline a growth share, or is it an income share?” How would you classify a share like GSK?
Mark:
I think you can argue it's a bit of both, actually. It's a very ... the pharmaceutical, the big pharmas at least, are just different. They're just different animals to pretty well everything else around, and the reason they're different is because of the patent cliff. They've got this problem of all these patents expiring, which has a big impact on earnings. In the case of Glaxo, in many ways they're kind of first over the cliff, they've been through the pain. So I think you can now look at Glaxo as much more of a growth company than you could a while ago. AstraZeneca, which is a very similar business, still has the cliff ahead, so you've got probably three years before you can look at that as a business that can start to build a track record of earnings growth. But I do think Glaxo is, in many ways, a growth business, because it's past this problem, and it does happen to have a very good yield as well, which is great. If you get the yield thrown in, you shouldn't complain – it's marvellous.
But we've found, in the searches we do, a lot of our business, the bulk of our business is really more growth investing, but income is something we also now do. Everything we do is very much screening-based. We're trying to use screens to whittle down the universe to a manageable size, and we've found, in the last six months or so, we're finding quite a lot of income fund contenders amongst the low-PEG growth companies that we're screening for for our growth funds, which is interesting, and it's not something that happens very often. I couldn't really describe to you the significance, because I'm not quite sure what it is, but it's just a phenomenon we're aware of.
So a good example would be Aberdeen Asset Management, which had great figures yesterday, and is something we've owned for some time in some of our growth portfolios, particularly for our institutional class. We have Aberdeen in there, it's been a long-standing holding that's done very well. It's probably the best-performing financial share. If you take the share price pre-crisis, and look at it today, it's more than doubled since its pre-crisis level, which I think no other financial business has been able to do, maybe with the exception of Prudential. It's rare – no, Prudential hasn't either, so it's rare. But that has been coming up recently very strongly in the low-PEG tables in REFS, which is our primary data source, and a very attractive PEG, nice, low multiple of earnings, very good growth rate in earnings; it also has a very good yield.
You go back six months, the yield was around 6%, fantastic – and a growing yield as well, which we're particularly keen on. So that, we bought for our income fund, and that was in that first bucket I described. That's a company with a good yield, but nice growing earnings and a lot of growth company dynamics as well; not incredibly racy earnings, but good, strong, pretty reliable earnings growth. Those shares have gone up a lot, but the yield now is about 4%, so it's at the lower end now for our income fund. Our average yield is about 5%, for the stocks we own, so the yield for the fund is 4.5, but we have 10% cash, so the average yield for the stocks is about 5.
So Aberdeen is at the lower end, but we still like it, because the yield is growing very fast, and the dynamics are quite predictable in that they announced yesterday a dividend up 16%, which isn't too shabby. It was actually a bit disappointing to us, that, because we do expect ... there's a special dynamic with Aberdeen, which is that the company used to have debt, it's now paid off the debt. It also needs quite a lot of regulatory capital to satisfy the FSA. At the end of this current year, they're going to have enough cash to satisfy the FSA, and it has no debt as well, and from then on in, the cash generation is totally surplus to requirements. The company used to be highly acquisitive, and it's now stated that that's no longer the case – it's got everything it needs.
So we expect, going forward, the very strong cashflows that they're generating to go, there'll be some buybacks, which they do quite regularly, and the rest will go to dividends. A fairly modest increase in the payout ratio would see a very rapid growth in the dividend, so I think it's quite realistic to expect compound earnings growth of 10 to 15% and compound dividend growth of 20, 25% going forward for Aberdeen, for the next three years or so, which is a hell of a driver. So I think we're going to get capital growth and significant income growth from Aberdeen. So that's an example of the sort of confluence of the growth and income approach, and there are quite a lot of others. It's a nice sweet spot when you can get a yield thrown in, almost for nothing.
David:
Right, another company that seems to sort of fit that category of both income and growth is Tesco. Tesco is one company that has increased its dividend, I think, for 30 years now on the trot. Would you consider Tesco as being a growth company, or an income?
Mark:
I would now say it's totally income.
David:
It's gone ex-growth?
Mark:
I think so, for the time being, I do, and we don't own it at all. I think the problem with Tesco is, yes, you get a 5%, they're about 5% yield, which is very attractive. It's got loads of assets, lots of property, lots of good things like that, and it's very solid – it's not going to go bust. It's incredibly solid; it's going to make money. Even if its earnings fall a bit, they're not going to be massively different to what they were last year. The problem for me with Tesco, the reason we don't own it, is, I'd rather come back later. I think they have a clear problem, they've announced they have a problem, everyone knows they've got a serious problem, of getting their UK business back on track. That's going to cost a lot of money, it'll probably take much longer than people expect as well. It's a supertanker.
David:
But during that time, they are still going to be paying dividends though, aren't they?
Mark:
They will, but I'd rather own a business where you're getting the 5%, but with the prospect of dividend growth, and I don't see that with Tesco. I also think there is a chance, there is disappointment on earnings as well – there's a chance of that. Their business model is dependent on momentum. They would plough a lot of money back into lower prices, which would in turn turn the wheel. They can't do that now. They haven't got that virtuous cycle. It's actually, if anything, going backwards, and they've got reverse momentum, I think, in their business, and they've really got to do an awful lot of things to put that right. I think it's going to be very difficult. I think they'll do it. Sainsbury's had ten years in the wilderness – it was a long time. I don't know what will happen with Tesco, but I would rather just keep an eye on it. It's not going to run away, it's not that kind of company. I'd rather keep an eye on it, and come back to it in a year or two.
David:
OK, now one of the problems that income investors have is that today we look at the stock market, and we think, oh, there are some good dividend-paying shares out there. But as more and more people start coming into the market, what you describe as being a tidal wave of money waiting to be invested in high-yielding equities, how difficult is it going to be for people like you, and for me as a private investor, to start identifying good income shares?
Mark:
I think it'll be glorious, as long as you're already invested.
David:
But if you're not, then what do you do?
Mark:
If you're not, you've missed it. It hasn't happened yet. I think we will see a tidal wave of money going into these sorts of companies, into income-producing shares, and that money will come out of bonds. I've no idea when that'll happen, but I think it will happen. While you're waiting, you're getting a very superior yield in equities, so I'm very happy to wait. I do think it's something that will happen, because when people become disillusioned with bonds, and I'm really stating the obvious, all bull markets end – they just do.
The bond/bull market is 30 years old, and we're at an extreme position where people are being forced to buy them, it's pretty unusual. I think when it ends, the only market that's big enough to absorb the flows, we're talking a multi-trillion dollar market, the only market that's big enough to absorb the flows is the equity market, and I mean globally – not just our market, and in addition to which, there's an awful lot of money just in money market deposits. There's a lot of money just in cash, or near cash as well. I think a lot of that money is going to be pointed at the equity markets at some point. The timing's very difficult – I don't know, but I do know that, when people buy what you own, the share price tends to go up, and I like that.
David:
OK, so what's going to happen to your income fund, when that day happens? – when it becomes increasingly difficult for you to start finding good income shares, and money keeps on pouring into your fund? I know you're going to be sitting out on some island out in the South Pacific somewhere, enjoying yourself, but what do you do as an investor?
Mark:
The honest answer is, I think we'll have to deal with that when we get there. I think it's a high-class problem for an asset that you own to go up dramatically in price. I also think things don't happen in a completely linear way, so in the same way that, with growth shares, a lot of growth shares have had a good run, but there are always cheap ones around. You can always find good things to do with money. But if things went completely mad, we would hopefully respond in the same manner.
David:
I suppose you could just simply close the fund, and say, I can't accept any more contributions?
Mark:
Yes, I think we would look at anything sensible. We're big investors in the fund, we're not going to do something stupid. But I don't think it'll be a sort of linear process, this. I don't think it'll happen one day. I think that, over time, people will gradually become disillusioned with the yields that are available on cash and bonds. People will start to consider equities as an alternative. It's not suitable for everybody – equities are volatile. A lot of people just don't like that. I think they're wrong, but a lot of people don't like that, and won't like that. So I think it'll be a gradual process, but I think it will happen, and I think we'll make good money out of it, and I think it's a relatively low-risk way of approaching things. The kinds of companies we're buying are steady, sensible, well-established businesses that happen to have very good yields, and where their earnings are growing as well, so we're not trying to re-invent the wheel, and we're not doing something dangerous.
David:
OK, so it's interesting you say that equities isn't for everybody.
Mark:
I think they should be, but they're not.
David:
I completely agree with you. So in relation to income funds, who do you think are most suited for investing in income funds? Is there a type of investor that you think, that you would like to target?
Mark:
I think for us, as long as our investors understand what we're doing, we're very happy to have them aboard. The key is they understand what we're trying to do. They should have realistic expectations and understand what we're doing. That's all we worry about. Beyond that, it's up to them to manage their affairs. But I think that anyone buying equities of any kind should understand that they are volatile, and they can move around. In a way, that's why there's an anomaly. These 5, 6% yields that one can find, from good businesses, some people are put off by the fluctuations in equity prices.
We have loads of conversations with the trustees of pension funds. A lot of our clients are pension fund trustees. They are being almost bullied into buying bonds by consultants, and also by the corporate sponsors, who effectively are liable for the pension fund deficit. They know, in many cases, that it's mad to buy bonds, but because equities are volatile, they're not acceptable to the people, to the consultants and to the finance directors of the corporate sponsors, and it's a form of madness, when people are buying things, bonds, for non-financial reasons. They're not buying them because they think they're cheap; they're not buying because they want to or like them particularly; they're buying because they've got a gun to their head – it's mad, I think . That's behaviour I wouldn't want to be involved with, but it's because equities fluctuate that they're not able to buy high-yielding equities. To my mind, that's the safest thing they could do today – much safer than buying something like a bond at a very high price.
David:
But I suppose the knock-on effect of that, Mark, is that, if somebody was saving towards a retirement fund, and they saw that the annuity rate that is being offered at the moment is 4%, they would say, I need to save an awful lot more in order to get a decent annuity, because that annuity rate that you're offering me is only 4%. Now, if they were able to offer somebody say 5% or 6%, based on dividend yields, I wouldn't have to save as much.
Mark:
Fantastic – I agree. To my mind, I think there's a bit of an anomaly here. There is clearly risk in equities, and I don't want to understate that – there is risk. There's the disparity between the equity yield available and the bond yield, or let's say the ten-year treasury bond yield, is unusually big, that disparity. Who knows how it'll be resolved? It may be that equities come down a bit, and bonds come down a bit at the same time. The gap will close – we don't know quite how, but over a long period, I would much rather be involved in equities because they do have inflation-compensating characteristics over time, they definitely do, because businesses are organic and they can put their prices up, for instance. So you have some degree of inflation compensation, and your starting point is a much more attractive yield.
But I agree – I think there's a danger in seeking excessive yields, so I wouldn't go for ridiculously high-yielding equities, because often those yields aren't paid, because they cut their dividends. But at the moment, this sort of 4 to 6% ballpark, which is where most of our companies are, it's attractive and it's realistic. It's real, they're going to pay – they're going to pay these numbers. So sure, if someone out there, some pension provider, could create a product around that, it would be very attractive to people, but I don't think they will. In my view, and I hope I'm right, is that this whole idea of having to buy annuities will go out the window, because it's mad. I just don't think it's fair to people, with interest rates where they are, that they should be forced to buy annuities, so I hope to God that changes.
David:
OK, so my final question, Mark, is probably a slightly unfair one, but given that you wear two hats, an income hat and a growth hat at the same time, if you only had £100 to invest, would you put it in the income fund, or the growth fund?
Mark:
It's a totally unfair question! But I think they're completely different animals, and I own both. But my view is that they're actually highly complementary, because the income fund is much lower risk. I like income too, everyone likes income, and for certain people it's essential. Certainly as people get older, they actually need it to live on. So I think it's very effective, the income fund, at delivering a very nice yield, and it's relatively safe in the context of equity investment; it's relatively safe and it's pretty reliable. So I think it's very complementary with the growth side of what we do, which where we're also focusing on reliability. The underlying businesses we own are very reliable, good businesses, which we're buying at sensible prices. But it's a bit racier, in the sense that you're looking at quite dynamic rates of growth, so it's more likely to get more volatile. I think they sit well together, they really do. I own both, because I want to own both.
David:
I think if my son asked me that, I would say, put £50 in one and £50 in the other.
Mark:
You can't go too wrong doing that, but they're very different animals, but they are complementary, because they are in a way attacking the same problem from two quite different angles, which is, they're trying to both be reliable and deliver a reliable result, but using two very different strategies.
David:
Yeah, we have a newsletter service here where we have two picks: one called fire, one called ice, and ice tends to be cooler, more calmer, and they tend to be income stocks. The fire stocks, on the other hand, are roaring, they are more exciting, and they're more growth-orientated. So we're going to have to have a look, at the end of this year, whether the fire picks do well, or the ice picks do well.
Mark:
Sure, and I think very often it changes, so some years you'll do better on one than the other, and that's what a portfolio's about.
David:
Exactly – what a great place to end! So thank you ever so much for coming in today, Mark.
Mark:
It's a great pleasure.
David:
I know you have a heavy day ahead of you. Now, I have one more chore to perform before we turn off the mikes, and that is to find a quote to sum up today's podcast, and today's quote comes from Mark Cuban, who said: "I rarely think the market is right. I believe non-dividend stocks aren't much more than like baseball cards. They are worth what you can convince somebody to pay for it." I think he's absolutely wrong, because I think growth stocks have characteristics all of their own.
Mark:
I agree with that.
David:
There you go, so anyway, this has been Money Talk, I have been David Kuo, and my guest has been Mark Slater from MFM Slater Income Fund. Now, don't forget, if you have a question about investing, you can now join Sonia Rehill on her new podcast called, Ask A Foolish Question. Email your questions to: foolishquestions@fool.co.uk. Before I go, thank you so much again for coming in today, Mark.
Mark:
Thank you.
David:
And until next week, happy investing!
