Invesco Perpetual’s chief investment officer Nick Mustoe is behind this £858.93m fund, which launched in March 2009.
He is supported by five fund managers – one from each of the firm’s regional equity teams.
Mr Mustoe says the aim is to “seek to deliver a combination of income and capital growth to provide a total return greater than the global equity market”.
“Our process is to look for companies at attractive valuations that can sustain and grow profit margins and deliver returns throughout the economic cycle, and which offer growing and sustainable dividends,” he says.
Free cash generation plays an important part in his valuation appraisal. “We seek companies which we believe are high quality, with attractive franchises, and balance sheets with a conservative level of debt. We believe it is vitally important to invest alongside management that allocates capital in the best interests of shareholders, which is not always as obvious as it seems.”
The managers who help him on the fund are responsible for identifying and analysing stock ideas, which are presented to the team for review.
“We maintain a focused portfolio of 50-55 holdings, and are long term in our outlook. Our average holding period is in excess of three years,” says Mr Mustoe.
“Both country and sector exposures are a result of our bottom-up stock selection process. However, as a part of our due diligence the investment team considers the impact the global economic situation will have on profitability and cash flow.”
The latest fund update for the first three months of 2015 reveals a number of changes in the portfolio. The manager introduced a new position in Italian banking group Intesa Sanpaolo, on the basis that it provides a “good mix” of income and growth potential at an attractive valuation. It also took a new position in Orange, the French telecoms group, with the manager referring to its strong management team and a rising income stream.
Mr Mustoe sold his holding in US company Mead Johnson, which produces infant milk, noting the share price had risen to a level he could no longer justify on fundamentals.
The key investor information document shows the fund is at level five on a risk-reward scale, while the income (no trail) share class has an ongoing charge of 1.17 per cent.
The fund has consistently outperformed its peer group, the Investment Association Global Equity Income sector, over one, three and five years, data from FE Analytics shows. It remains top quartile over each of those periods, having generated a respectable 81.49 per cent total return in the five years to April 14, against the sector average of 61.07 per cent.
That performance has been maintained in the past 12 months, having delivered 19.64 per cent to investors, compared with the 17.48 per cent return generated by the sector.
The fund update document reports on the portfolio performance in the three months to March 31 2015. It points out that during the first quarter of the year global equity markets were driven by both central bank policy and currency movements, “with Japan leading the way”. The manager says Europe also performed well against the broader market, while in contrast, the US equity market was one of the weaker regions, globally.
According to Mr Mustoe, stock selection was strongest within financials, industrials, materials and energy. “The fund also benefited from being overweight in the consumer discretionary, healthcare and industrials sectors, which did well, from being underweight in the IT sector, and having no exposure to utilities, both of which lagged the broader market.”
Mr Mustoe holds a “constructive” outlook for global equity markets. “While we acknowledge that equities do not look particularly cheap, we see them as offering better value than bonds. Moreover, we see the global economy growing steadily in 2015 and central banks around the world continuing to provide liquidity and maintaining interest rates at low levels. These factors should be positive for corporate earnings growth.”
EXPERT VIEW
Juliet Schooling Latter, research director, Chelsea Financial Services
We liked this fund when run by previous managers Paul Boyne and Doug McGraw, and were about to put it on our ‘buy’ list when the managers left. It didn’t make it in the end as we felt the investment style changed a little too much, becoming more collaborative [in its] decision-making. That’s not to say it’s a bad thing – Invesco has a very experienced global equity income team that has produced good, steady results. But there are similar funds out there that we felt just pipped it to the post, and the yield isn’t as high as we would like in the sector (2.4 per cent). We currently rate it a ‘hold’. It has a high overweight to Europe and the UK and is underweight the US, Japan and Asia.
