Contributing factors behind big performers

This article is part of
Hunt for income - November 2013

Diversification is normally a key reason for investors to seek income on a global basis rather than just in the UK.

This is supported by the fact in the third quarter of 2013 the top-15 dividend paying companies accounted for approximately 68 per cent of all Q3 dividends, according to the Capita UK dividend monitor.

This means many of the top UK equity income funds hold the same stalwarts such as Vodafone, HSBC and BP, but is the same true of global equity income funds?

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Looking at the top holdings of the 10 best-performing funds in the IMA Global Equity Income sector for the 12 months to October 28, only one fund, the £337.8m Artemis Global Income fund run by Jacob de Tusch-Lec, has none of its largest holdings in common with the other nine vehicles.

The most popular holdings are European pharmaceutical firms such as Roche and Novartis, which both appear in four of the 10 funds, although there is also a place for traditional UK income stocks in the portfolios.

Tesco appears in the top 10 holdings of two of the funds, as does BT Group, while Vodafone and HSBC are held in three portfolios.

This suggests that global equity income funds are not always as diverse in their holdings as it would appear, although two of the funds in the sample, the £451.88m Invesco Perpetual Global Equity Income fund and the St James Place Global Equity Income fund are both run by Nick Mustoe from Invesco Perpetual and therefore the top-10 holdings are virtually identical apart from some differences in the order.

Meanwhile the Artemis fund, which is the best performer in the 12-month period with a return of 32.65 per cent against the sector average of 22.78 per cent, has benefited from its exposure to Europe, particularly Germany. The portfolio has approximately 45 per cent exposure to the eurozone, Scandinavia, Switzerland and the UK, while the largest weighting among the majority of the other funds is the US and the UK.

In commentary on the latest factsheet, Mr de Tusch-Lec notes: “While we continue to monitor things closely, we continue to believe Europe provides a good risk-return trade-off compared to other regions. Two of the fund’s top-10 holdings, media groups RTL and ProSieben, are direct beneficiaries of the strong German economy.

“Another driver to the fund’s strong performance has been avoiding ‘expensive defensives’. These stocks are just too expensive (for us). Instead, our exposure is to relatively ‘unknown’ stocks such as Lorillard, a US company with a 40 per cent share of the booming US market for e-cigarettes and Greencore, an Irish sandwich-maker.”

It seems clear that as with its UK counterpart the Global Equity Income sector also has the ability to concentrate on similar stocks that no doubt have attractive income benefits, but it can pay for investors to look outside the traditional areas.

Nyree Stewart is deputy features editor at Investment Adviser