The issue faced by managers here is far from simple. On the face of it the solution would appear straightforward – seek out higher-yielding stocks. But higher yields can potentially mean a stock’s value is at risk, so opting for this route could compromise the needs of investors.
Table 1 shows the current yields for the 20 top-performing global equity income funds over five years, and indicates the wide range of payouts on offer. The figures encompass the IA’s sector, the Schroder fund – which now sits in the IA Global grouping – and the M&G Global Dividend fund, which opted not to join the income sector upon its creation in 2012.
The highest yield of those listed, that of Premier Global Utilities Income, is due to this fund’s focus on a specific part of the equity market.
In general, the higher yields are to be found towards the bottom end of the list – indicating the trade-off between capital growth and income that must be carefully considered when selecting an equity income product.
Performance
A growing income is as important for many investors as a high starting yield. It is worth noting that three in every five funds in the Global Equity Income sector cut payouts in what proved to be a particularly difficult 2015. The healthy capital growth enjoyed by most offerings in the sector in 2016 should have translated into a return to rising dividends, but those figures were not available as Money Management went to press.
When gauging the returns of global income funds, it should be noted that all performance figures assume reinvestment of income. Leading the way over five years is the Artemis Global Income fund, which has produced average annual growth in excess of 18 per cent.
The positioning of the fund makes for interesting reading. It favours large financial companies, with almost a third of the portfolio allocated to banking, insurance and financials.
The banking industry has experienced more stability in recent years, and though it has struggled with the introduction of negative interest rates in regions like Europe and Japan in 2016, the sector has subsequently enjoyed a short-term rally as bonds start to struggle.
The Artemis fund’s performance dipped last year, however, perhaps in part because it is underweight the thriving US equity market.
This is a rare move for a global income fund. Despite the sector’s name, many of its members are still heavily reliant on the US. This is partly due to the number of dividend-paying stocks found there, and also because the country accounts for 50 per cent of the typical global stockmarket index.
