Investment firm's dividend-growth strategy has held up well during market crash despite not owning many leading wealth creators
“It feels like three years in one already,” Michael Capombassis said, summing up how most people in the wealth management industry probably feel right now. More than most, however, Bristol Gate Capital Partners has reason to be positive as it navigates through the wreckage of COVID-19.
Capombassis, president of the Toronto-based investment management firm, oversaw net inflows of $285 million during the first quarter, and that trend has continued into Q2, taking the company’s combined AUM and AUA to about $1.75 billion courtesy of its Canadian Equity Strategy and U.S. Equity Strategy.
As previously reported by WP, the firm combines data science and fundamental analysis in its process, and has a proprietary machine learning model that predicts dividend growth a year in advance. It’s a method that aims to eliminate human bias from the screening process and provide an analytical edge over its competitors. In the first of two articles with WP - the second will focus on its response to the market crash - we look at how that approach is working.
Bristol Gate's products are available in Canada but the firm is also SEC registered and on a number of major platforms in the U.S., which has propelled inflows. Focused on high-dividend growth at the highest quality, Capombassis is rightly proud of the company's record, outperforming the S&P 500 over 10 years plus without being able to own the leading wealth creators that don’t pay a dividend, including the likes Apple, which didn't start paying out a dividend until 2012, Amazon, Google and Netflix.
Establishing itself on America's biggest platforms has undoubtedly helped Bristol Gate’s growth, said Capombassis, along with the complementary nature of its active products. He told WP they fit nicely alongside passive strategies like the famous SPY ETF, for example.
“You should have room for satellite managers like us because we would complement SPY very well," he said. "That won’t hurt you on the upside and we will help you on the downside. With SPY, you own a handful of very, very large companies and almost nothing of a whole bunch of other names in the index, so we are a wonderful complement to passive and other good active strategies out there because we are unique in the dividend and dividend-growth space.”
The company prides itself on performance, having produced 20% annual dividend growth per year for its investors for almost 11 years. It’s a standard that’s held up over the COVID-19 crash when compared to some of the major indexes, which, of course, contain FAANG stocks and Microsoft, and other non-dividend payers, like Zoom and healthcare names working on coronavirus treatments and vaccines, that have thrived during lockdown.
At the end of May, the S&P 500 was down about 5%, the Dow (30 stocks) was down 10% and the NASDAQ 100 (48% of which is FAANGs plus Microsoft) was up 10%, cementing its position as a top performer propelled by tech and healthcare. Bristol Gate was down 7%, a figure that looks even better when compared to the indexes that are of similar portfolio construction, the S&P 500 Equal Weight (down 12%) and the Dividend Aristocrats (down 11%), which Capombassis believes is the most famous dividend growth product in the world.
He said: “It has 64 names (Bristol Gate's U.S. Equity Strategy has 22) that have paid an increasing dividend for the past 25 years, with blue chip companies like Johnson & Johnson, Proctor & Gamble, AT&T and Exxon. It’s a backward looking dividend growth product, we’re forward-looking; we have only two names that overlap with Aristocrats even though we're dividend growth and they’re dividend growth, but they were down 11% at the end of May. So, it's unlikely you'll find another dividend strategy that’s actually holding up better this year.”
He added: “It's been a very challenging year for anybody in the business across investment management and capital markets but I think in terms of our business, when you're paying for active management, certain firms will come out of this in better competitive shape.”