One of these, Domino’s Pizza, looks set to reinstate its payment as soon as the worst of the crisis is over – Harries noted that takeaway pizza has proved popular in the lockdown and the company has raised its guidance.
However, the other company, Intercontinental Hotels Group, looks more problematic. What may raise eyebrows among investors, in light of Trojan Global Income’s cautious stance, is that the holding was only added after the coronavirus-related panic reached its peak.
“We can’t be too downhearted that it has decided to suspend its dividend for now,” said Harries (pictured). “It is probably a sensible thing to do.
“We are mindful of the fact that being a hotel group, it is in the centre of everything that's going on at the moment in terms of dramatically lower occupancy. [But] we bought it pretty much at the low.”
Data from FE Analytics shows that IHG has fallen more than 30 per cent year-to-date and was down as much as 54.2 per cent in March, around the time that Harries bought in.
Performance of stock in 2020
Source: FE Analytics
The manager is keen to point out that this is only a small position in his fund. Yet in any case, despite the large fall in the company’s share price, Harries is confident of its ability to survive the economic lockdown.
“We have done the analysis and we think it has got sufficient cash to get through for really quite a significant period of time,” he said.
“It is a very high quality business. It is a high-quality, growing global hotel franchise with a high return on capital. It owns the underlying brands as well as managing them. And so it’s the sort of business that in a more stressed environment, one ought to be looking to buy.”
Of course, the initial lockdown is not the only significant challenge facing the travel and hospitality industry.
Last week, British Airways announced it would make 12,000 staff redundant while Ryanair said it would cut 3,000 jobs as the airlines attempt to adjust their business models to account for lower travel appetite in the post-coronavirus world.
However, Harries expects IHG to be more resilient, for two reasons.
“Firstly, IHG’s custom is largely business related and we think that business travel will resume at some point,” he explained.
“A lot of that travelling takes place intra-country rather than cross-border, so we think that will come back more quickly.
“And I guess the final point to make is that IHG is the owner of many well-known brands: Holiday Inn, Crowne Plaza and so on.
“We think that if people are travelling, then they’re going to be favouring properly branded, properly managed and clean hotels. And that will play into the branded franchise that IHG represents.”
Harries said another important point relates back to its strong cash position. While the government has announced £330bn of loans and guarantees to help prop up the economy during the coronavirus pandemic, the manager noted it may be problematic for income investors if a holding has to access this help.
“The resilience of the free cash flow properties of our portfolio means that, generally speaking, its companies won’t require any direct government support,” he added.
“Therefore it will be socially acceptable for these companies to continue to pay shareholders.
“There’s nothing evil about dividends, people rely on them and they live on them. But one needs to be cognisant of the fact that if you’re in receipt of government support, that becomes more problematic.”
Data from FE Analytics shows Trojan Global Income has made 26.38 per cent since launch in November 2016, compared with gains of 24.75 per cent from its MSCI World benchmark and 7.51 per cent from the IA Global Equity Income sector.
Performance of fund vs sector and index since launch
Source: FE Analytics
The £200m fund has ongoing charges of 0.95 per cent and is yielding 2.93 per cent.