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Funds for downside protection: Global Equity Income

19 February 2014

In the next article in the series, FE Trustnet looks at which funds in this fashionable sector have protected the best in the previous two market downturns.

By Thomas McMahon,

News Editor, FE Trustnet

The Global Equity Income sector was one of the most popular among retail investors in December, according to IMA sales figures, outselling even UK Equity Income.

The true sales figures are higher than the £131m recorded by the trade body once the sales of M&G Global Dividend are included.

FE Analytics data shows that the fund has averaged inflows of £316m a month over the past three years, suggesting that Global Equity Income may well have taken in more than the £400m of the UK All Companies sector, officially the most-bought strategy in the month.

A lot of investors have a significant part of their portfolio in this sector. As markets wobble in the early months of the year, it is useful to look at what happened to the funds during the most recent poor period – in December, when sales were so high, the overwhelming mood in the markets was one of optimism.

There have been two significant market corrections over the past three years. The first saw the MSCI World index lose 19.13 per cent between 7 July 2011 and 19 August 2011, while in the second, between 21 May 2013 and 24 June 2013, it fell 9.23 per cent.

Performance of index and sector in 2011 correction

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Source: FE Analytics

The best-performing fund during the first correction was BlackRock Global Income. It is run by Stuart Reeve, who has recently been joined by Andrew Wheatley-Hubbard and James Bristow.

The fund was launched shortly before the correction, in which it lost 12.27 per cent, less than all other funds. However, its total returns of 25.34 per cent since launch put it in the top quartile of the sector.


The fund is yielding 3.02 per cent and is available through platforms.

Performance of fund vs sector and benchmark since launch

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Source: FE Analytics

The £2.84bn Veritas Global Equity Income fund, managed by FE Alpha Managers Andy Headley and Charles Richardson, lost 12.46 per cent during the same period and the £3.9bn Newton Global Higher Income fund 12.58 per cent.

Funds from Aberdeen, Baillie Gifford and Threadneedle make up the top quartile of performers.

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Source: FE Analytics

In the market correction of last year it was a very different group of funds that outperformed.

Standard Life Global Equity Income lost only 6.09 per cent and Guinness Global Equity Income 6.87 per cent; Fidelity Global Dividend lost 6.92 per cent.

The £107m Standard Life fund has been run by FE Alpha Manager Kevin Troup since January 2012. It has low ongoing charges of just 1.07 per cent, and a yield of 3.22 per cent, according to FE Analytics.

The fund has produced the highest returns in the sector over five- and 10-year periods and is fifth out of 21 funds over three years.

There is no clear pattern in the regional holdings of funds in the sector.

The Standard Life fund has slightly increased its weighting to Japan since last year’s crisis and slightly decreased its weighting to Europe.

The Guinness fund, on the other hand, has reduced its weighting to the US from over 50 per cent to around 40 per cent.

Its weighting to the UK has also been reduced, while the fund’s managers, Ian Mortimer and Matthew Page, have been buying into some more esoteric areas, building up a 2.8 per cent position in the Middle East and Africa and 2.8 per cent in South Africa.

They have also increased their weighting to the Pacific Basin, an area largely avoided by most funds in the sector at the moment, and Australasia.

The fund yields 3.2 per cent.


It is notable that the funds that did the best in these two periods are not always those with the lowest volatility or downside volatility figures, raising the question of whether those measures are the most useful for investors to use.

Legg Mason Global Equity Income and Martin Currie Global Equity Income both have top quartile volatility scores over three years, meaning their volatility has been low, but neither appear on the list of the top-performers in the two most recent corrections.

Premier Global Power & Water
, JPM Global Equity Income and Henderson Global Equity Income have all underperformed the sector average in terms of volatility, but appear on the list of the top performers in the 2013 dip.

The Henderson fund is even fourth quartile.

The best volatility score over the period is that of the £3.9bn Newton Global Higher Income fund, one of the top performers in 2011.

The fund, managed by James Harries and Nick Clay, is yielding 4.09 per cent, putting it in the top quartile in the sector.

It is also top quartile for returns over that period, having made 29.37 per cent against the 26.78 per cent of the sector average.

The fund has been significantly increasing its weighting to Europe over the past 12 months, largely at the expense of the Pacific Basin region.

Its defensive approach caused it to struggle last year, as highlighted in a previous article.

In previous articles in this series we looked at the IMA UK Equity Income, IMA UK All Companies and IMA UK Smaller Companies sectors.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.