Introduction
According to figures from the IMA, the Global Equity Income sector has seen consistent inflows in terms of net retail sales in the year to May 2014, peaking in February when inflows reached £238m.
The IMA Global Equity Income sector was also the eighth-most popular sector by net retail sales in May 2014, with sales of £129.8m.
The IMA figures show that Global Equity funds were the best selling in May this year, with total net retail sales of £390m. Daniel Godfrey, chief executive of the IMA, points to the Isa season “rush” in March and April, which saw investors spread their investments across all asset classes, boosting net retail sales to £1.9bn for the month.
Jacob de Tusch-Lec, manager of the Artemis Global Income fund, acknowledges: “In a world where people are getting older, everybody wants income, and there isn’t much income around.”
Following the pensions shake-up in this year’s Budget – which means, from next year, that those of retirement age will not be required to buy an annuity – it is likely that more investors will turn to income, and global income, funds to see them through their retirement.
Mr de Tusch-Lec adds: “Equity income is very popular, and it solves a problem out there, because everybody needs some kind of income – especially people who are retired. And equities are actually providing a decent income at a time when bonds and other asset classes aren’t.”
He believes global income has been the best asset class for investors for five years, citing the global economic uncertainty that has loomed large over investment decisions.
“Companies that pay a growing dividend are a good place to hide, they’re kind of an anchor,” he explains. “If you look at the IMA Global Income sector, it has done well, even compared to the IMA Global sector. And it’s quite unusual that income stocks outperform growth stocks [in] a bull market. Usually, income outperforms in a bear market and growth outperforms in a bull market.”
With some potentially significant decisions from central banks on the horizon, what is a global income manager expecting for the rest of 2014?
Paul Ehrlichman, co-manager of the Legg Mason Global Equity Income fund, says: “For the rest of 2014, we expect that the markets could consolidate or correct somewhat after the recent strong gains as return drivers shift from multiple expansion to earnings growth.
“This is the case in Europe, where shares have been underperforming and are now quite oversold. We view this as a short-term condition and an attractive buying opportunity, as there remains significant room for recovery in Europe’s depressed economy.”
Mr Ehrlichman expects the US and the UK to experience the beginning of a longer-term period of poor relative performance by the end of the year as a result of rising interest rates and inflation weighing on generally high stock valuations.
The manager notes: “Yields of 3 per cent or more, increasing at 3 per cent to 5 per cent annually, could prove crucial to earning solid total returns as overall market multiples contract and overall earnings growth remains low.”
If investors are feeling unsettled by the macroeconomic story at the moment, global income funds may continue to see inflows.
The picks
Liontrust Global Income
This £252.8m fund is run by James Inglis-Jones and Samantha Gleave and aims to provide a high level of income, with capital values keeping pace with inflation. Until January 2014, it was known as the Income fund. It is a concentrated portfolio of 26 holdings, with Restaurant Group, Next and British Sky Broadcasting among its top 10. For the 10 years to July 16, the fund is third-quartile in the IMA Global Equity Income sector. It has delivered a top-quartile return of 98.17 per cent over five years, although performance has slipped to second-quartile over one and three years.
Lazard Global Equity Income
The objective of this £357.05m fund, which launched in October 2007, is long-term capital growth and dividend income. Lead manager Patrick Ryan is assisted by Andrew Lacey and Kyle Waldhauer, all of whom have been running the fund since its inception. The portfolio has 32.5 per cent in financials and is overweight North America, which accounts for 31.5 per cent of the fund. Among its 10 largest holdings are CenturyLink, Intel and Blackstone Mortgage Trust. The fund is top-quartile in the short term, with a return of 7.26 per cent in the year to July 16, following second-quartile returns over three and five years.
Editor’s pick
Legg Mason Global Equity Income
This fund aims to achieve a diversified level of income and capital appreciation. Global equity income head Paul Ehrlichman co-manages the fund alongside Safa Muhtaseb and Sean Bogda. They invest in high-quality companies they believe are “misunderstood” by the market to assemble a portfolio of 50 to 90 stocks. The fund is top-quartile in the IMA Global Equity Income sector across one, three and five years to July 16, delivering an impressive 91.84 per cent return over five years. It remains relatively small, at £29.03m, suggesting it is largely undiscovered by investors.
