Davis joined this year having previously ran Threadneedle’s European and Pan European Equity Dividend funds, while also being deputy on the David Dudding-led European Select fund.
Polar’s new UCITS sub fund, listed on the Irish Stock Exchange, will target an overall yield of 10% above the MSCI Europe Daily Total Return Net Euro benchmark index.
Davis will invest across 30-50 mid-to-large cap stocks (none below a market capitalisation of €1bn) with no more than 20% of the net asset value of the fund in companies with market capitalisation below €3bn.
Polar said the portfolio will comprise of three distinct portions in order to reach the yield target. The first is stocks with dividend yields below the index, but “where the high-conviction in capital appreciation warrants it”.
Secondly, it will adopt “classic” buy and hold positions that typically have dividend yields in line with the index. It will also target stocks that yield more than the index but have lower growth.
“Stock selection here is key to avoid ‘value traps’ where a ‘bargain stock’ appears promising but over time does not perform and the dividend is cut,” the firm said.
Davis said his investment approach is based on the main inefficiency in the market which is the time horizon.
“This is driven by two main factors; the first is investors being influenced by what we call short-term noise, such as macro data points, and secondly a general under-appreciation of the impact of compounding,” he said.
“We look to identify investment opportunities which are mispriced, either reflecting excessive short-term pessimism for strong franchises or a failure to price in the duration or reliability of future compounding earnings.
“We do this by detailed analysis of a company’s use of cash, carrying out due diligence on their business model and financial accounts.”
