Ask a Fund Manager
The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In part one of this edition, we’re joined by Don Hamson, managing director at Plato Investment Management.
The Motley Fool: What sets the Plato Australian Shares Income Fund apart from the competition?
Don Hamson: The Plato Australian Shares Income Fund, which can also be accessed on the ASX via Plato Income Maximiser Ltd (ASX: PL8), is one of the only managed funds that has a strategy designed to meet the needs and taxation circumstances of retirees and other tax-exempt investors.
For example, we fully value franking credits when making investment decisions, because tax-exempt investors, like pension phase superannuation, receive the full value of franking credits.
MF: Now, you’re fairly active in the market, correct?
DH: Yes, I would also say we have quite a unique strategy for maximising income.
Most income managers take a set-and-forget style approach, whereas we’re very nimble and not afraid to trade our portfolio to capture strong dividends from a stock or sector going through a good period. This, in turn, also allows us to capture the share price run-up prior to the ex-dividend date that often occurs.
MF: Which ASX dividend shares performed best for you in 2022, delivering both share price gains and solid yields?
DH: It’s not surprising that many of our best performers in 2022 were in the commodity complex.
We generated both strong returns and dividends from BHP Group Ltd (ASX: BHP), Woodside Energy Group Ltd (ASX: WDS), and Whitehaven Coal Ltd (ASX: WHC) who each benefited from strong commodity prices in 2022.
MF: Will investors face any big changes when hunting for top ASX dividend shares in 2023 compared to 2022?
DH: Markets are always changing; today’s hero can very well be tomorrow’s villain. This is why Plato has a nimble income generation strategy. Investors should never be fooled into thinking the good times for any dividend-paying stock will last forever. You must always be thinking about future dividend payouts and the ongoing strength of companies and sectors.
Future dividends, not the last payout, help keep the lights on, so active portfolio management is critical when it comes to income investing.
Clearly, the biggest change for investors to adapt to right now is a new investing landscape. There are investors and even fund managers who’ve only ever experienced a low or declining interest rate environment, but the economic cycle has returned, and we have rates coming off their lowest levels in history. So, this has implications on all sorts of things – liquidity and stock market preferences to name a few.
MF: What’s been your experience with markets and dividends under times of rising interest rates?
DH: Interestingly, I think this period could be quite similar to 1994 when I was working at Westpac. Then, interest rates went up for the first time in quite a while, inflation spiked, there was negative returns on bonds, negative returns on equity – but dividends kept rising.
MF: Which ASX dividend shares you’re most bullish on for 2023?
DH: We think dividends from ASX shares will once again be a great way to generate income this year, especially for retirees. But diversification and active and tax-effective portfolio management is critical.
If I had to name just two companies we’re quite positive on for dividends across the year, I would say Macquarie Group Ltd (ASX: MQG) and Woodside Energy are among some of the top prospects.
MF: Why Woodside?
DH: From Woodside, we saw standout results through 2022 and think the set-up for energy over the coming 12 months will see prices of raw materials remain somewhat elevated.
The company also completed a merger with BHP’s petroleum business, which should generate some $400 million worth of synergies by early 2024.
MF: And Macquarie?
DH: When it comes to Macquarie, you have a very well-managed diversified financial services group. One of the most attractive aspects of the business is its diverse revenues, which is important for sustainable dividends moving forward.
Macquarie should benefit from increasing margins in its lending business. And, as we’ve seen in recent results, it is a beneficiary of volatility in commodity markets through its commodities trading desk.
**
Tune in tomorrow for part two of our interview, when Don Hamson looks at some promising ASX dividend plays for 2023 outside of the resources sector.
(You can find out more about the Plato Australian Shares Income Fund here.)
