After standing up to the ultimate test in 2020, Hilton customers have taken an increased interest in Hilton’s Dividend and Yield Strategy. Known for its flagship strategy Tactical Income, Hilton has cultivated an ever-growing base of loyal customers who rely on the steady hand of the investment team and guiding principles that have made Tactical Income a core piece of investor portfolios.
Co-Chief Investment Officer Alexander Oxenham joined Hilton in 2011 to provide some depth to the investment team bench and worked closely with founder Bill Garvey to refine the macroeconomic outlook for the firm as well as risk mitigation strategies in the post financial crisis landscape. After two years into his tenure, the team moved forward on a new strategy around a concept that Oxenham helped pioneer at HSBC. Formulated in 2013, the Dividend & Yield strategy was launched in 2014.
“The premise at HSBC,” says Oxenham, “was to encourage private bank clients to invest in the market. Everyone was pretty scarred by the financial crisis so convincing clients to return to equities was actually difficult despite it being a great time for equities.”
What made Oxenham’s approach unique was developing “guardrails” for sector weighting limitations on a portfolio of dividend oriented equities. Prior to this, dividend and yield strategies were popular because of low historical volatility and high yields. However, the financial crisis highlighted a core weakness of pure dividend and yield strategies because many of the top yielding dividend stocks at the time were heavily weighted toward sectors hit particularly hard during the crisis.
“It’s not designed to wildly outperform the benchmark, it’s designed to get clients the exposure they’re looking for with the knowledge that the Hilton team is overseeing it with the same discipline we maintain across the board.”
“Because so many of these strategies were heavy on telecom, utilities and financials—typically strong dividend selections—they had an inherent weakness at that point in time so a lot of managers were really caught off guard when these sectors were down forty to fifty-five percent,” says Oxenham.
"WaMu, National City, Wachovia, over-leveraged utilities, big telecoms with enormous debt burdens were core parts of these strategies,” continues Oxenham. “So when they went down, everything went down together. Essentially, these strategies overlooked some pretty basic fundamentals, which is easy to say in hindsight because the composition of strong dividend paying companies with big balance sheets was pretty enticing, as you can imagine.”
Oxenham and the Hilton team worked the concept around for quite a while before committing to the principal of sector weighting dividend and yield stocks closely around the S&P 500. In theory, this would avoid the overweight pitfall that caused such steep declines in 2008 and 2009 and prevent the team from chasing yield.
“It’s easy to forget about dividend stocks today, but you have to remember that from 2000 to 2007 the mentality was all about dividends,” explains Oxenham. “Today, everyone wants growth. It found a nice home at HSBC and I definitely had it in the back of my mind when I joined Hilton. So we keep it pretty simple to ensure that we are adhering to the Hilton fundamentals of solid risk management and income generation.”
Hilton’s Dividend and Yield Strategy (DIVYs) has “done what I expected it to do,” says Oxenham, adding: “It’s not designed to wildly outperform the benchmark, it’s designed to get clients the exposure they’re looking for with the knowledge that the Hilton team is overseeing it with the same discipline we maintain across the board.”
Oxenham further states that the success of DIVYs is less about picking stocks and more about keeping tight sector weightings. If the team overweights a particular sector, it must follow the same rigorous examination and logic that the investment team applies to its other strategies.
“If you’re going to overweight a particular sector, you have to possess a strong conviction because the core philosophy here at Hilton has been proven out over many years,” Oxenham says. “By nature bank run investment departments always lean more on the bullish side of things, which isn’t bad necessarily. But it lacks the type of rigor required to make changes to the portfolio because at Hilton you have to be able to explain your rationale and defend it against some really strong minds here on the team.”
Another plus in Oxenham’s view is that there’s only one macro house view so any overweight allocations are being vetted across the board among all Hilton strategies.
“That’s the benefit of having added depth to our bench with people like Tom Maher,” explains Oxenham. “Being able to tap into Tom’s small and mid-cap experience, means I have access to a host of really solid mid cap equity ideas that might otherwise be overlooked in other organizations that are more siloed in their approach.”
Hilton clients have certainly taken notice of DIVYs performance with more and more investors adding Hilton strategies to their mix.
“Our clients know that DIVYs isn’t here to swing for the fences,” says Oxenham. “We’re looking to hit singles and doubles. Consequently, we’ve been able to produce some solid results versus our benchmark for our investor base because we’re built to perform in any market cycle as a bread and butter income strategy.”
“That’s the big idea behind dividend equities,” he adds. “Increased resilience to market disruptions because, in theory, the bigger dividend paying companies tend to be more conservative and have bigger balance sheets. Of course, this fell apart somewhat during the financial crisis. So what we did by adding the S&P 500 sector weighting (guard rail) is seek to ensure that sector disruptions wouldn’t add undue risk to the portfolio.
“And when you consider the names, you’re talking about some of the best companies in the world. From Comcast, Blackrock and Pfizer to Caterpillar, Waste Management and Apple, these are world class companies spread out to reflect the broader economy and all paying healthy dividends.
“So oftentimes we’re speaking with advisors or high net worth individuals who really value the work we’ve done with Tactical Income over the years but are also looking for a more growth oriented strategy to complement their investments. That’s where DIVYs has really found a sweet spot.”
To learn more about DIVYs, view our strategy page or contact a Hilton representative.