Franklin Income Fund has delivered monthly payments to shareholders since 1948! Portfolio manager Edward Perks explains how he is carrying on the tradition. Plus IVA Worldwide Fund’s Charles de Lardemelle explains where he is finding value and protection around the world.
WEALTHTRACK Episode #934; Originally Broadcast on February 15, 2013
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Perks & de Lardemelle
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Director of Portfolio Management, Franklin Equity Group
Portfolio Manager, Franklin Income Fund
Charles de Lardemelle
Founding Partner, International Value Advisers
Portfolio Manager, IVA Worldwide Fund[/wptabcontent]
[wptabcontent]There is still plenty of money to be made in the stock market and there is no one quite like Warren Buffett to boost investor spirits. Buffett’s Berkshire Hathaway teamed up with 3G Capital, an investment company run by Brazilian multi-billionaire investor Jorge Paulo Lemann, to buy iconic Ketchup maker H.J Heinz Co. for $72.50 a share, a 20% premium over Wednesday’s closing price. The deal with debt is worth about $28 billion and according to Bloomberg is the largest ever in the food industry The announcement helped lift the S&P 500 to a five-year high.
Also of note is that Berkshire’s investment reportedly will involve a preferred stock stake of an estimated $8 billion, which pays an annual dividend of 9%. Of course Berkshire itself does not pay a dividend to its shareholders and never has. According to one of this week’s WEALTHTRACK guest, that is bound to change.
IVA Worldwide’s Chuck de Lardemelle owns Berkshire Hathaway in his fund portfolios. Here’s what he has to say:
“For the long term, we like high-quality U.S. stocks. An example of that would be Berkshire Hathaway which doesn’t pay a dividend just yet, but we do believe that when Buffett decides to retire, he has very strong incentives to pay dividends, first because he is making donations of his shares to foundations and endowments, and these institutions will need the income, and so we believe that he will have a great incentive to pay dividends, and also because the main challenge when Buffett retires will be obviously capital allocation, and if you distribute a large portion of your earnings, then that challenge shrinks substantially…”
On WEALTHTRACK this week, we are welcoming two new guests to our lineup. Both run global mutual funds that can invest across asset classes. Each has a distinctive style and objective, and a proven track record. Charles “Chuck” de Lardemelle is a founding partner of International Value Advisers and a portfolio manager of the IVA Worldwide and International funds. Prior to launching International Value Advisers in 2008, Chuck spent many years at the First Eagle Funds under the guidance of legendary value investor Jean Marie Eveillard.
Edward Perks is Director of Portfolio Management at the Franklin Equity Group and has been a portfolio manager of the Franklin Income Fund for the last decade. The fund has paid a monthly dividend continuously since 1948. The $70 billion dollar fund currently yields over 6% and has delivered annualized returns of around 9% over the last ten years, including a 14% gain last year. It ranks near the top of its category short and long term. I’ll begin the interview by asking each of them, as newcomers to WEALTHTRACK, to briefly explain the mission and philosophy of each of their funds.
As always, if you can’t join us at the appointed hour on your local public television station, you can watch the show on our website as a podcast or streaming video. You can also find the One Investment picks of our guests and my Action Points there. For those of you who would like to see our program 48 hours in advance of the broadcast, you can subscribe to our WEALTHTRACK PREMIUM subscription service on the website.
Have a great weekend, a lovely Valentine’s Day and make the week ahead a profitable and a productive one!
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THE ONE INVESTMENT
PERKS: SECTOR DIVERSIFICATION
Large cap, dividend oriented stocks
Franklin Income’s Funds Top Holdings as of 1/24/13: Merck (MRK), Wells Fargo (WFC), General Electric (GE), Duke Energy (DUK), BP (BP)
“Well, for me, as you’d probably suspect, it’s large cap, dividend-oriented stocks and that’s what we’re doing in Franklin Income Fund. That’s my largest investment. If you look at our top five holdings, really playing on that theme of sector diversification, Merck, Wells Fargo, GE, Duke Energy and BP are our top five holdings… five different sectors, on average about a four percent dividend yield, substantially higher than long-term Treasuries, higher than you can get in corporate bonds and investment grade, and I’d encourage people to really broaden that, not just look at those highest yielding stocks. Really think more broadly about the dividend yield opportunity in equities and focus on that dividend growth potential.”
DE LARDEMELLE: HIGH QUALITY U.S. STOCKS
Berkshire Hathaway Inc. Class A (BRK.A)
Price: $147,750.00 on 2/13/13
52-week range: $116,850.00 – $148,562.00
“For the long term, we like high-quality U.S. stocks. An example of that would be Berkshire Hathaway which doesn’t pay a dividend just yet, but we do believe that when Buffett decides to retire, he has very strong incentives to pay dividends, first because he is making donations of his shares to foundations and endowments, and these institutions will need the income, and so we believe that he will have a great incentive to pay dividends, and also because the main challenge when Buffett retires will be obviously capital allocation, and if you distribute a large portion of your earnings, then that challenge shrinks substantially, and so we still believe that the company is somewhat undervalued. We have an intrinsic value around $175,000 a share versus a price of $145,000, and it’s going to be a very nice compounder. If inflation ever comes back, you are much better off with equities than you would be long-term bonds at these prices.”
-Chuck de Lardemelle
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