Edge Asset Management, a boutique fund manager under the umbrella of Principal Global Investors (PGI), has began distributing its dividend focussed equity funds in Asia amid a strong demand for yield from investors struggling in a low interest rate environment.
“Everybody wants yield. We’ve been hearing about it on this trip over and over again. It’s not just in Asia, it’s around the world because we have very low interest rates. Yield is a big driver plus we also have ageing demographics that are driving a need for income-oriented strategies. That’s happening in and outside the US. As investors get older, this need for income and the need for yield is critical,” observes EDGE president Jill Cuniff on a recent visit to Hong Kong.
EDGE offers a range of equity income strategies and recently converted its UCITS-compliant fund from a large cap value/equity income strategy to a small mid-cap value/equity income strategy (SMID) because the latter offers a competitive yield of 4% (versus 3% for the large value strategy) providing investors with better income potential. The SMID strategy is also UCITS-compliant, making it more attractive to both retail and institutional investors, especially in Asia.
“Over the last several years, a lot of investors particularly on the retail side, have invested in fixed income. These dividend strategies are a great bridge for investors to go from fixed income into equities. As a conservative equity manager, we provide that yield component through the dividend but also the potential for capital appreciation,” Cuniff points out.
This approach seeks to provide long-term growth in both income and capital, by investing primarily in common stocks of small and mid-cap US companies. It has a bottom-up, contrarian investment approach focussing on dividend-paying stocks that are attractively priced with the potential for all things dividend: dividend growth, pay dividends, consistently grow dividends over time, as well as demonstrate long term growth profitability.
EDGE believes that dividend-paying companies exhibit less volatility than non-dividend payers and provide the potential for higher risk-adjusted returns. Such corporates also have historically offered more downside risk mitigation during periods of weak economic growth and in low interest rate environments.
“We believe an allocation to this asset class can result in better equity returns, less volatility and offer complimentary benefits relative to other income strategies,” Cuniff adds.
Venturing outside the US
EDGE currently manages about US$8 billion in dividend strategies, which includes about US$1.4 billion in its SMID strategy, out of a total AUM of US$26.5 billion as of April 2014.
Although it became a part of the Principal group in 2007 when it was acquired as a fully-owned subsidiary, the company – which used to be known as WM Advisors – dates back to the 1800s. EDGE is currently celebrating the 75th anniversary of their first mutual fund established in 1939. It has been a pioneer in the field of actively-managed asset allocation funds and is also a leading fundamental manager delivering equity and fixed income products centred on total return and income.
Like other boutiques in the PGI group, EDGE has a separate and autonomous investment platform.
“This is by design. We don’t share information and we don’t want to be correlated with the other managers. We want separate and distinct strategies. But at the same time, we are able to leverage the large global footprint of our parent because PGI has offices around the world and that helps us in terms of our distribution and infrastructure. So they handle our finance, accounting, human resources and IT network. They also act as our back office providing operational support for our investment team,” Cuniff notes.
EDGE has been building its distribution network in and out of the US with the objective of expanding beyond its roots as a retail mutual fund manager. It has been working with consultants, pension funds and sovereign wealth funds in and outside the US.
“We started distributing outside the US about 20 months ago. This is our third trip to China in the last maybe 20 months and during that time, we’ve been working with investors all over the world. We brought on a big client in Japan for one of our equity strategies and we brought on a client in the Middle East for one of our fixed income strategies. There’s a wide demand and different types of investors for what we do and we’re very excited about the growth. Our assets under management have almost doubled since I joined four and a half years ago,” she enthuses.
The firm has been working with consultants and using the Principal network to overcome the unfamiliarity that most Asian institutional investors have with the EDGE brand name.
“Institutional investors know Principal has relationships with large pension plans and sovereign wealth funds both in and outside the US. We had participated in searches here in Hong Kong just because our numbers are good and people contacted us. So there’s a number of ways that we are building that distribution. We are on the road a lot, going out and talking to investors,” Cuniff says.
