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How does the Marriott Dividend Growth Fund perform so well?

11 June 2012 Marriott Asset Management

The Marriott Dividend Growth Fund boasts an impressive performance track record. This success is derived from a consistent application of Marriott’s investment philosophy rather than a slavish attempt to outperform a benchmark.

The Marriott Dividend Growth Fund is currently one of the best performing general equity unit trusts over the short and longer term. The current ranking of the fund over 1, 2, 3, 4 and 5 year periods, based on investment value growth up until the 31 May 2012, is outlined in the table below.

Table 1: Marriott Dividend Growth Fund ranking – as at 31 May 2012

Years

Rank

Number of unit trusts

1

6th

107

2

7th

101

3

3rd

97

4

1st

85

5

3rd

70

The impressive performance of the fund may come as a surprise to some. This is due to the fact that unlike most general equity unit trusts, the fund's mandate makes no mention of trying to provide greater investment value growth than the SA all share index, the most commonly used performance benchmark. The stated objective of the Marriott Dividend Growth Fund is simply to provide investors with an acceptable dividend yield and growing levels of dividend income.

Marriott attributes the fund’s good performance to its income focused investment style, highlighting that investment value growth is ultimately driven by income – the drivers being income yield and income growth. Re-investing income allows for the accumulation of additional capital. Income growth results in capital value growth. The combination of the two is what increases the Rand value of any investment.

When it comes to equity investing, income growth is generally the biggest contributor to investment value growth over the longer term. This is because equities are typically low yielding investments but provide income growth in excess of inflation. It is important to note that the more reliable the income growth, the more predictable the growth in investment value.

For the past five years South African companies have struggled to consistently increase profits and dividend payments to shareholders due to the impact of the global economic slowdown. During this period the Dividend Growth Fund restricted its investment universe to companies with the ability to produce reliable dividend growth regardless of the economic circumstances. Consequently, the fund was able to grow its distributions to investors at an average rate of 8.7% p.a., approximately 2% above inflation. It was this growth in income, as well the reinvestment of the fund’s distributions, which resulted in an 8.9% p.a. increase in investment value over the period – almost double the return of the average general equity fund.

For investors preparing for retirement, the fund’s ability to produce a relatively high level of dividend income and reliable income growth makes it ideal for inclusion in a Retirement Annuity. Over time, the fund’s income growth as well as the compounding effect of reinvesting income will generate a high level of income for retirement and a more predictable end result.

For retired investors the fund is also well suited for inclusion in Living Annuities, as its higher yield and reliable income will assist investors avoid capital erosion (the redemption of income producing investments) and will produce income growth in excess of inflation.

Although capital growth receives a great deal of investor attention, investing is ultimately all about income. Marriott’s advice for investors: focus on income and let the capital take care of itself.

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