Investments  

Davidson slashes allocation to North America

Davidson slashes allocation to North America

Compressed dividend yields in North America have spurred global equity manager James Davidson to slash his exposure to the region in half.

The strategy is part of an ongoing overhaul that was kick-started when Mr Davidson became co-manager of the £89.7m JPMorgan Global Equity Income fund alongside incumbent Gerd Woort-Menker.

The fund has underperformed its peer group average and benchmark index since its launch in February 2007.

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The 41.1 per cent return from its sterling share class falls well below the 69.2 per cent average for the IA Global Equity Income peer group, and even further behind the 80.2 per cent rise in the MSCI AC World index, data from FE Analytics shows.

But the fund has produced a second-quartile return of 16 per cent since Mr Davidson joined in November 2013.

The manager said he had previously cut the number of holdings in the fund from 80 to 70 and was targeting 7 per cent growth in the fund’s dividend on an annual basis.

In a bid to move closer to this figure, Mr Davidson said he had chopped his holding in North America from about 60 per cent at the end of last year to 28.7 per cent by the end of March.

He said: “Dividend yields in the US have compressed quite a lot. The market had done well for us, but we’ve seen a change in the rest of the world, which is offering better opportunities.

“The kinds of dividends and buybacks you were seeing in the US are now beginning to appear in Europe.”

The fund’s allocation to Europe, excluding the UK, has jumped about 12 percentage points this year, from 20 per cent to 32.3 per cent at the end of March.

Two of Mr Davidson’s preferred European countries are Germany and Switzerland.

His third-largest holding is German healthcare company Bayer, which makes up 2.9 per cent of his portfolio.

“The dividend has more than doubled in the past four years and our in-house view is that it is going to rise a further 25 per cent in the next five years,” he said.

In Switzerland, the manager favours reinsurance company Swiss Re, which is offering a 3 per cent share buyback on top of its 8 per cent dividend.

Mr Davidson has seen a similar trend in Japan. His holding in the region has increased from roughly 7 per cent to 11 per cent at the end of April.

He thought Japan Tobacco looked promising, which was becoming more like “western tobacco companies” in terms of the returns it offered investors.