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Fund Review: US Income


Currently there are 10 funds in the IA sectors with a one-year track record to March 4 2015, while just three have a 10-year track record. The Jupiter North American Income fund tops the list in the decade with a return of 159.12 per cent.

In the shorter term, US income funds have also delivered reasonable returns ranging from 25.17 per cent from the Neptune US Income fund managed by James Hackman to the 17.37 per cent achieved by the IFSL Harewood US Enhanced Income fund.

The performance compares favourably with the average return of the wider IA North American sector, which has delivered 20.73 per cent for the 12 months to March 4 2015, while longer-term performance of 134.05 per cent over 10 years puts it in the middle of the table.

One of the benefits of US income funds is the access to one of the largest dividend-paying markets in the world, with North America accounting for approximately 33 per cent of total global dividends in 2014, according to research from the Henderson Global Dividend Index.

In 2014, the research shows that North American dividends grew 14.7 per cent year on year at a headline level to $393.2bn (£261bn), of which 91 per cent or $355.3bn came from the US.

While the US was the main regional driver of dividend growth in 2014, the report notes that the 6.7 per cent increase in underlying global dividend growth was primarily attributable to the effect of the “sudden and sharp rise in the US dollar”, which meant “all regions outside North America saw dividends fall in US dollar terms in the fourth quarter”.

As Alex Crooke, head of global equity income at Henderson Global Investors, points out: “Since we introduced our 2015 forecast, three key things have changed: first, the global economic outlook has clouded; secondly, the oil price has collapsed to a six-year low; and thirdly, the US dollar has surged in value.

“Exchange rate movements are a distraction from companies’ ability to deliver growing dividends to their shareholders over the longer term. Of course, in any one-year, currency swings can make a big difference.

“So, while US dollar-based investors will see somewhat less growth this year than in 2014, we expect UK investors in global equities to enjoy headline dividend growth of 6.6 per cent, while European investors can look forward to growth of 8.8 per cent based on current exchange.”

While US economic growth currently looks on track, the case for US income returns could shift with any further macro disruption.

With the US Federal Reserve looking likely to increase interest rates at some point this year, and the US stockmarket having already experienced a strong rally and increase in valuations, it will pay to keep an eye on the sources of US income to determine whether the yield is really worth the cost.


Marlborough US Multi-Cap Income

With just £11.2m in assets, this multi-cap fund is managed by Paul Tryon and John D Lemery with the aim of delivering a growing level of income and the potential for capital growth. Performance has been patchy compared with its IA North American sector peer group, though the 10-year return is a strong 104.34 per cent and the 12-month performance sits at 20.49 per cent. The portfolio is relatively concentrated at 43 holdings, with roughly 12.2 per cent of the fund invested in medium-sized firms, while 50.9 per cent is in mega-caps and a further 30.8 per cent in large caps.

North American Income Trust

Launched in 1902 and currently managed by Aberdeen Asset Management’s Paul Atkinson, this investment trust has gross assets of £349.3m and aims to provide above-average dividend income through a portfolio of mainly S&P 500 companies. Its top 10 holdings include the likes of Microsoft, Verizon, Target and Pfizer, while its largest sector weighting is to consumer staples at 16.4 per cent. Its performance is steady, with a 10-year share price total return of 113.78 per cent. Its 12-month performance is slightly behind the curve at 12.32 per cent.


JPM US Equity Income

Managed by Clare Hart and Jonathan Simon, this £2.96bn fund was launched in 2008 with the aim of delivering income from US equities through investment in any economic sector, while participating in long-term capital growth. Performance has been strong with the fund in the top three IA-listed US income funds across one, three and five years, delivering a five-year return to March 4 2015 of 101.17 per cent compared with the IA North America sector average of 83.89 per cent. The largest sector weighting is to financials at 25.7 per cent. Top 10 holdings include Apple, Exxon and Pfizer.

In this special report