Income view: Britannia rules the waves no longer?
The UK market was once traditionally seen as the home of equity income investing but, over the past 10 years, the growth in dividends has been stronger outside Britain, making global income funds extremely attractive.
These funds have come to life in recent years and, judging by the strength of global companies that can grow their dividends over the longer term, they should shine over the coming years.
The global market has delivered 5 per cent dividend growth over the past 10 years, compared with 3.4 per cent for the UK. If you look at the MSCI AC World index, there are only 45 companies in the UK that have dividend yields above 3 per cent – compared with 549 companies outside the country. The choice of global companies is diverse, and a fund like Bloxham Global Equity Income is well placed to capture the opportunities in the global market.
Bloxham is an independent investment house based in Dublin. It may not be a giant like Schroders or Fidelity, but it deserves more recognition from UK investors. The company is owned by eight partners, which means they have a clear and direct incentive to make their funds a success and, consequently, grow their business.
Incentivisation is absolutely key - after all, this is what drives a fund manager - and the Bloxham business is set up in this way. This means key individuals like Pramit Ghose, manager of Bloxham Global Equity Income, is well incentivised to perform over the longer term. They also have a sole focus on managing global products and are not sidetracked by other funds.
Mr Ghose takes a conservative and contrarian approach, which naturally leads him to have a value style bias. In a nutshell, he looks for solid blue-chip companies, with good cash flows and low valuations. Ultimately, he likes to invest in high-quality companies with the ability to grow their dividends on a sustained basis.
This contrarian approach means he tends to avoid fashionable areas of the market. It also means the fund is likely to underperform in a strongly rising market like we saw in 2009. However, it should outperform in moderately rising, flat or falling markets, and this outperformance should more than make up for any underperformance over the longer term.
The investment process is simple. Screening cuts a universe of about 3,000 companies down to 300. These then go through a further process, which helps Mr Ghose construct a portfolio of 50-70 stocks. The process does not allow him to buy low-yielding shares. This means every company has to have an above-average yield before it can be considered for inclusion in the portfolio.
However, what makes them different is the considerable amount of technical research they have carried out on share-price trends for companies. Some of these strategies are similar to those used by hedge funds and sets them apart from their peers.
Despite the calibre of the team, the UK retail fund is only £10m in size, but this should not put off potential investors. The firm manages €650m (£564.5m) across its global income strategy, and this is a mirror of the existing strategy. Given a dedicated team and their commitment to the retail market, the fund is in a prime position to grow its assets.