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Fund Review: Global Equity Income


It is therefore of little surprise that the Investment Association Global Equity Income sector was the fifth best-selling sector in February 2015, with net retail inflows of £175.2m.

This still lags the level of IA UK Equity Income, however, with net retail inflows of £248.4m in February.

The latest Henderson Global Dividend Index report in February notes that total global dividends have continued to rise year on year, but most of this income comes from just three regions – North America, mostly the US; Europe ex UK, in particular Germany and France; and the UK.

Of the individual countries, the US accounted for approximately $355.3bn (£240.5bn) of the total $1.167trn of global dividends in 2014, while the UK accounted for $135.2bn of dividends.

So while the term ‘global’ suggests a broad portfolio of stocks that avoids the problems of, say, a UK equity income portfolio where the top 15 dividend-paying stocks accounted for 63 per cent of all UK dividends in 2014, exactly how diversified are these ‘global’ funds?

Four of the top five best-performing funds in the IA Global Equity Income sector for the 12 months to April 13 2015 made their largest regional allocations to North America, Europe ex UK and UK.

Only the Artemis Global Income fund mixes it up slightly with its biggest 29.8 per cent allocation to the eurozone, its second largest allocation of 26.5 per cent to North America, while Asia Pacific ex Japan edges into third place at 15 per cent ahead of the UK.

Interestingly, on the closed-ended side, within the top five investment trusts in the AIC IT Global Equity Income sector for the year to April 13 2015, the best performing vehicle is the Henderson International Income Trust, with no exposure to the UK – though it does have 36.6 per cent in the US.

Meanwhile Asia, the Pacific Rim or the Far East appear in the three largest regional allocations of these trusts.

In performance terms, all five open-ended funds delivered a higher return in the 12 months than the best performing Henderson International Income Trust, with a 23.3 per cent total return.

Commenting on the outlook James Harries, lead manager of the Newton Global Income fund, notes: “We fear quantitative easing (QE) will ultimately be deflationary by encouraging the building of capacity, notably in China, to serve a level of consumption that itself is a result of QE, and therefore artificial.

“This, combined with elevated equity valuations globally, makes for an unattractive structural backdrop. We are therefore cautious. We expect rates to remain low and emerging markets and related currencies, sectors [such as] commodities and companies, to struggle.”

Meanwhile Ben Lofthouse, manager of the Henderson International Income Trust, suggests Europe and Asia are offering attractive valuations.

“The euro is weakening on account of QE, providing a boost to exporters. We’ve seen a reduction in fiscal drag, as public sector cuts have reduced and receipts from tax revenues increased. Coming alongside a recent drop in ‘effective’ interest rates and cheap oil, this is all putting money in consumers’ pockets.

“In Asia we are particularly encouraged by the increasing focus on shareholder returns. In China the fight against corruption and the shake-up of state-owned enterprises is improving capital distribution.”


Schroder Global Equity Income

Launched in May 2007 this £112.6m fund aims to provide income and capital growth by investing in companies that offer attractive yields and sustainable dividend payments. Managed by Ian Kelly and Jamie Lowry since November 2013, the fund has a relatively concentrated portfolio of 49 holdings, with the largest regional allocation to the Americas at 40.1 per cent, although this is underweight compared with its MSCI World benchmark. It is ranked second in the IA Global Equity Income sector across one and five years, while the three-year return of 57.12 per cent also keeps it in the top 10.

Henderson International Income Trust

This investment trust run by Ben Lofthouse has £97m of net assets and aims to provide a high and rising level of dividends from a “focused and internationally diversified portfolio” outside the UK. Its largest regional allocation is to the US at 36.6 per cent, while its top 10 holdings include Reynolds American, Bank of China, Novartis and SK Telecom. It has outperformed the AIC IT Global Equity Income sector average across one and three years, and tops the sector for the 12 months to April 13 with a return of 23.3 per cent against the sector average of 10.03 per cent.


Artemis Global Income

Managed by Jacob de Tusch-Lec, with Frederik Lerche-Lerchenborg as analyst, this £1.96bn fund is one of the largest offerings in the sector, but is also one of the more diversified. It aims to achieve a rising income with capital growth, and while it mainly invest in global equities it can have exposure to fixed interest securities, and adopts an unconstrained approach to company size, sector and geography. It has topped the IA Global Equity Income sector for the three years to April 13 with a return of 83.06 per cent, compared with the sector average of 49.5 per cent, while its 12 month performance of 26.37 per cent places it fourth in the sector, according to data from FE Analytics.

In this special report