David King has been investing in income-oriented securities for 40 years and brings a distinctive approach to the Columbia Flexible Capital Income fund.
King, the lead manager of the $1.2 billion fund, takes a go-anywhere approach that involves a range of stocks and bonds, including junk debt and convertible securities.
“Our competitors take a top-down approach to asset allocation while we draw a big circle around income securities,” King says.
Most funds with balanced portfolios of stocks and bonds have different managers handling the two asset classes. The fund will determine how much to apportion to the two asset classes and then the stock and bond managers get to work.
Not King’s fund. “We don’t say that high-yield bonds as an asset class are good or bad, we make bottom-up calls on securities,” he says. The result of that, for now, is a portfolio with about 40% in stocks, 40% in bonds and 20% in convertible securities
The fund’s long-term performance is good, including a 10-year return of 6.3%, about a half percentage point above its Morningstar category.
But the fund has been a laggard in the past year. It’s flat in the year through November, about six percentage points behind its benchmark. King attributes that to an orientation toward value and mid-cap stocks, both of which have trailed the
S&P 500 index.
| 1-Yr Return | 3-Yr Return | 5-Yr Return | 10-Yr Return | |
|---|---|---|---|---|
| Columbia Flexible Capital Income / CFCRX | 0.0% | 3.7% | 6.7% | 6.3% |
| Morningstar Moderate Allocation Category | 5.9 | 3.1 | 6.2 | 5.8 |
Note: Returns through Nov. 30; three-, five-, and 10-year returns are annualized.
Sources: Columbia Threadneedle Investments, Morningstar
King favors laggard sectors including utilities, telecommunications, and real estate investment trusts.
He’s bullish on both
AT&T
and
Verizon,
which have bounced about 15% to 20% off their October lows but remain inexpensive, valued at seven to eight times next year’s projected earnings. Verizon yields almost 7% and AT&T, 6.6%, among the highest in the S&P 500 index.
“Verizon has never cut its dividend and AT&T has no need to cut its dividend again,” King says. The AT&T payout was cut by more than 40% in conjunction with its spinoff to shareholders of a 71% stake in Warner Brothers Discovery in 2022. While investors appear concerned about the Verizon dividend given the high yield, the company boosted its quarterly dividend slightly in September, making 17 years of annual dividend boosts.
King also likes the utility sector, which has bounced recently with the strong rally in the bond market. He favors large-cap
Duke Energy
and
Entergy,
both down about 10% this year and yielding 4%. One of his top choices is
UGI,
a depressed, small cap ($5 billion market value) Pennsylvania gas utility that yields over 6%.
King favors
Boston Properties,
a leader in the out of favor group of office REITs. Its stock has bounced 20% recently but remains below its Covid lows. It has a diversified portfolio in big cities like New York, San Francisco and Boston.
“It has some of the best buildings and a strong balance sheet,” King says. “Office demand may be troughing now.” The shares yield over 6%.
Write to Andrew Bary at [email protected]
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