Cholwill’s fund has returned 32 per cent over the past three years, compared with 25 per cent for the average fund in the IA UK Equity Income fund in the same time period.
He commented that, ‘we don’t have to own a share just because a lot of other managers in the sector do, I pick the shares that I think represent the best opportunities, and around 40 per cent
Cholwill continued, ‘Lloyds is a share that is very popular with many of my peers. I guess a reason for the optimism is that its tier one capital ratio is very good, and a lot of investors think the excess capital generated will be paid out to shareholders in dividends.’
The tier one capital ratio is the amount of capital the bank has deployed in ‘lower risk’ assets, it is required to retain a certain slug of its balance sheet in those assets, but can pay out the surplus in dividends.
Cholwill takes the view that a much more robust test of the true test of a bank’s balance sheet and financial strength is its gross leverage, and he worries about the health of Lloyds mortgage book. He contrasted that with one of his holdings, Paragon, he commented, ‘this company is much more conservative in its forecasts for the UK mortgage market, which is the approach I agree with.’
He is also invested in the personal finance company Close brothers.
The Uk mid-cap to which he has the largest exposure is BBA Aviation.
The veteran investor commented, ‘this is now one of the top ten holdings in my fund, mostly due to strong performance last year. The company is involved in providing services to the corporate jet market in the US, and that is a big market, due to the size of the country. That is a market that has been growing by more than the rate of GDP for years, and BBA Aviation is the clear market leader. It generates a lot of cash, and doesn’t require a lot of cash to grow, so we think it is an attractive dividend stock for the coming years.’
The Royal London UK Equity Income fund has a current yield of 3.88 per cent.