Launched in April 2009 the £2.19bn Standard Life Investments (SLI) European Equity Income fund has been managed since inception by Will James.
The fund aims to deliver a premium yield of 115 per cent of the FTSE Europe ex-UK Index by adopting a total-return approach. The manager notes he applies “a clear, consistent and effective portfolio construction methodology, which has delivered strong performance in both up and down markets alongside attractive income generation”.
Mr James explains: “The fund is guided by [a]… philosophy [that] recognises that different factors drive markets at different times in the investment cycle.”
The manager is part of a 10-strong European equity team at SLI, which identifies the best investment opportunities across the European market. Mr James then takes the ideas and applies a strict income overlay in order to construct a portfolio across three distinct categories: high dividend, dividend growth and dividend upgrade.
He says: “Each category plays a key role in driving the performance of the fund. It has been run using the same process since launch and this has proven to be effective in many different market conditions.”
Macroeconomic factors therefore have little effect on the process, says the manager, although he is “cognisant of the influence that macro factors may have on European equities”.
The fund’s total return approach places it at a six out of seven on its synthetic risk-reward indicator, according to its key investor information document, while the ongoing charges for the ‘clean’ retail platform income share class are 0.9 per cent.
For the five years to February 13 2015 the fund has delivered an impressive 65.03 per cent for its retail income share class compared with an IA Europe ex UK sector average of 54.06 per cent and a FTSE Europe ex UK index return of 49.21 per cent.
In addition, the fund has outperformed both the sector and the index across one- and three-year periods, according to data from FE Analytics.
The manager notes the portfolio, which comprises roughly 60 holdings, is relatively settled with a number of names being held since launch.
Although Mr James adds: “A couple of new names that have made it into the portfolio are Endesa, the Spanish utility, which has undergone a period of restructuring and is now in a position to pay a high and attractive dividend yield.
“Another company that has met the investment criteria is Kone, the Finnish engineering company, which has a strong market position globally, is a key beneficiary of euro weakness and has a strong track record of cash returns to investors.”
The manager attributes the strong performance primarily to the investment process, with contributors coming from a variety of sectors and countries, including Coloplast, a Danish wound care company, Ryanair, the low-cost airline, and Symrise, a German flavours and fragrance firm.
Mr James explains: “By not screening the market for those stocks that pay a premium to the index, we are able to select stocks from the broadest opportunity set. The investable universe is any stock that currently pays a dividend or where we feel they will pay a dividend in the next fiscal year.”
But there have been some detractors from performance, including Statoil, which has been affected by the oil price, and German media conglomerate RTL. The manager suggests, however, that equity dividend yields in the region remain attractive “and even more so post the announced quantitative easing (QE) in Europe”.
He adds: “For 2015, it will be interesting to see how a confluence of factors – falling oil price, a weaker euro against the US dollar, QE in Europe, the tightening cycle in the US, elections – will impact markets and corporate prospects.”
EXPERT VIEW
Ben Willis, investment manager and head of research, Whitechurch Securities
This has been an excellent fund over the medium term and has been well supported, with the fund now more than £2bn in size. The fund has delivered the attributes sought from an equity income fund: it delivers a consistently higher yield than the market; it defends capital better in relative terms during periods of market weakness, but also ably participates within rising markets. A good core exposure for those seeking income from European equities.
