Best in class: Fidelity Global Dividend
There is an understandable home bias for income-hungry investors in the UK given the strong and long-standing dividend culture which has been established here.
However, the risk-reward scenario for UK equity income is that while the UK has an established dividend market, investors are relying on payments from only a handful of companies: roughly 80 per cent of all dividend payments come from just 15 companies in the UK, with 51 per cent coming from the largest five alone.
So the idea of widening the net for income-seeking investors to look for companies’ globally is one which has been growing in the past decade, especially as company dividend-paying culture has been improving in many parts of the world.
It also allows investors access to sectors which are under-represented in a local index. The UK, for example, has a limited exposure to the technology market where the main representation is in the US and Asia.
The preference for active investing for global equity income is clear: investors go from famine to feast given there are almost 2,500 dividend-paying companies to choose from.
This is where this week’s best in class fund can step in.
Fidelity Global Dividend has been managed by Dan Roberts since its launch in January 2012. Mr Roberts looks for companies with understandable business models and predictable, resilient returns, and is happy to pay a fair price for a good company.
The stocks included in the portfolio need to have their “destiny in their own hands” and not be too heavily linked to the wider economy.
The criteria for selecting companies falls mainly into two buckets. The first is valuation support, with Mr Roberts wanting to make sure he does not overpay for stocks – regardless of how good they look – as he does not want to dilute returns.
He has a preference for cash-based valuation metrics, as it is harder for companies to manipulate these – as opposed to reported earnings.
The second is the quality of the franchise, with the emphasis on investing in resilient businesses which can be depended upon. Here Mr Roberts targets returns on invested capital, cash conversion, balance sheet strength and earnings persistence.
His screening process encompasses around 20 metrics to filter his universe down to 180 - 200 potential stock picks.
He is also able to reference the investment recommendations of the team’s global diversified and global sector portfolio managers, which provide him with an overall perspective and highlight the most promising investment themes and stock ideas.
A focus on capital protection means Mr Roberts likes to have a diversified income stream so that he does not rely on any one country or sector in the portfolio.
The fund is also likely to be invested in larger cap, more liquid companies, with 88 per cent currently held in firms worth over £10bn.
While the fund has some exposure to the UK (19.8 per cent), there is a nice spread of holdings from all over the world: around of a third of the portfolio is invested in US companies and a third in Europe. The remainder is allocated to Japan, Asia and emerging markets.
Since launch on 30 January 2012, it is the number one fund in the sector, returning 144.04 per cent compared with 99.88 per cent for the peer group average. The performance of the fund, coupled with a focus on capital preservation, makes it a strong candidate for being a core global equity income holding.
Darius McDermott is managing director of FundCalibre
