Snapshot – Income: A global approach looks attractive

Recent press attention regarding members of the UK Equity Income sector has helped boost inflows, with the IMA noting it was the best selling sector in April 2014 with net retail inflows of £500m, the highest level recorded since the IMA began collecting data in 1992.

The Global Equity Income sector currently remains in its larger sibling’s shadow, with net retail sales in April of just £138.5m and funds under management of approximately £11bn compared with the UK Equity Income sector’s much larger £60.1bn.

Yet while performance has favoured the UK Equity Income sector across the longer term of one, three and five years, in the one and three months to June 12 it has been the Global Equity Income sector that has outperformed. For the three-month period, it returned 4.25 per cent compared with the UK equity income sector average of 1.96 per cent, while in the past four weeks global equity income delivered 2.55 per cent against an average return of 0.77 per cent from its UK peers, according to FE Analytics.

Article continues after advert

This highlights the fact there is much to be said for the diversity of a global approach to equity income. It is already well-known that most of the UK’s dividends come from just a few companies, meanwhile overlooked regions such as emerging markets delivered dividends worth $13.7bn (£8.1bn) in the first quarter of 2014.

Research from the second Henderson Global Dividend index notes global dividends increased 31.4 per cent in the first quarter of the year to reach $228.4bn, of which the UK accounts for just $48.2bn, with Vodafone’s special dividend making up roughly half of that total.

The largest market for dividends in the first three months of the year, however, was not the UK but instead North America with dividends reaching $95.5bn, an increase of 25.2 per cent in Q1.

But of course not all markets have performed as well, with Japan in particular bucking the trend with a decline in its dividend payouts in Q1 of 20.6 per cent to just $2bn. The Henderson Global Dividend index notes: “The decline in the yen accounted for half of the fall, and Q1 last year was flattered by a special dividend from Canon.”

Elsewhere Russia, which accounts for roughly 2 per cent of the annual global total of dividends saw its Q1 dividend figure more than half, “reflecting the unpredictable nature of distributions from companies there”, according to the Index report.

With investors continuing the hunt for income a global approach could prove more attractive as central banks in the UK and US look to increase interest rates.

Nyree Stewart is features editor at Investment Adviser