This is part one of a five-part interview with John (Jack) E. Leslie III, CFA Portfolio Manager for the Miller/Howard Income-Equity Fund. The interview is part of ValueWalk’s Value Fund Interview Series.
Miller/Howard Investments Inc. is an independent, SEC registered investment firm with over two decades’ experience managing equity portfolios for institutions and individuals in disciplined, dividend-focused investment strategies.
Jack Leslie has over 30 years of experience in the money management industry and before joining Miller/Howard in 2004 Jack was a portfolio manager at Value Line Asset Management, M&T Capital Advisors Group (Division of M&T Bank), and Dewey Square Investors (Division of UAM). Jack has been interviewed by The Wall Street Journal, Barron‘s and Forbes Online. Jack has appeared as a guest on thestreet.com and After the Bell on Fox Business.
The interview has been divided into five parts and will be downloadable as a PDF at the end of the series. So stay tuned.
Dividend investing with Miller/Howard Investments [Pt.1]
ValueWalk: How is Miller/Howard different from other asset managers?
Jack Leslie: We probably place more emphasis on a company’s dividend policy than most other asset managers. We ask the question “Is the dividend safe and will it grow?” While a portfolio’s yield is often a byproduct of value management for most managers with a value/dividend focus, value is more often a byproduct of our dividend focus. For instance, we have been managing our Income-Equity Strategy, which is the strategy that our mutual fund (Ticker MHIEX) is based on, for almost 20 years. [July 2017 will mark the 20th anniversary.] We have always invested in what we consider high quality companies that share their prosperity with shareholders by way of a high dividend yield, and also enough underlying growth to consistently grow their dividends. That three-part formula of high quality, high yield, and dividend growth is no longer uncommon today in our low rate environment but I can tell you that it waas very unique when we started this strategy in 1997. Lowell Miller’s book, The Single Best Investment (Creating Wealth with Dividend Growth) was first published in 1999, in the middle of the NASDAQ melt-up. Our approach was truly unique then and it has barely changed to this day.
So it’s our long-term commitment to the dividend approach to investing that sets Miller/Howard apart from other asset managers.
Another unique aspect of our management is the absolute yield that we have been able to deliver to our clients. Income produced from our portfolio gross of fees has averaged 250 bps annually above the income produced by the S&P 500 over the past 15 years. We have seen very few managers able to match the income levels we have delivered in our portfolios. And over the last 4 years income has grown at an annualized rate of over 6% in this strategy.
Miller/Howard seems to have a love affair with dividends, how did this come about?
Miller/Howard started more than 30 years ago as an institutional research firm. One of our clients asked us to research fixed income alternatives. Lowell Miller, founder and still chief investment officer of the firm, found that utilities was consistently the highest yielding sector. And yet, there were no existing studies of utilities as an asset class. Lowell completed the first ever study of utilities as an asset class, looking at the Dow Jones Utilities index vs. the S&P 500 as well as vs. the long bond over a 45 year period from 1945-1990.
What the study found was, over this 45 year period, utilities returned 50 bps less than the S&P 500 but did it at roughly half the volatility. Income from utilities was also greater than the income from long bonds. The key ingredient in this attractive risk/reward profile of the utilities sector was the power of rising income. The Dow Jones Utilities stocks had raised their dividends in 41 of the 45 years, resulting in a 14 fold increase in income. Rising income combined with the compounding resulting from reinvested income had resulted in an investment that provided market like returns with less risk while also producing better than bond income. Our first product, in fact, was called Utilities: Better than Bond/Income.
This study lead directly to Miller/Howard running equity money. Since that time, we have been focused on income-producing equities, primarily ones with recurring-revenue business models.