The funds offer UK investors a way to diversify their equity income portfolios out of the highly concentrated UK market where many funds buy a handful of the largest stocks which distribute the majority of dividends.
As this year’s ISA deadline draws near, we asked some of the members of our AFI list of expert panellists to tell us which funds in the sector they like for investors with different appetites for risk.
Aggressive: M&G Global Dividend
Mike Deverell (pictured), investment manager at Equilibrium Asset Management and AFI panellist, says that the £8.
89bn M&G Global Dividend fund is suitable for the aggressive investor in global equity income who is looking at the asset class more for total return than yield.The fund has been the third most popular with investors over the past three months in the entire UK universe, going by net inflows data from FE Analytics.
“It has a reasonably high yield, but it has more of a growth bias,” Deverell said.
“So if you have a strongly rising market the fund might do well, but although it has a dividend focus it has more of a mixture of growth and income.”
“It tends to have more in places like Asia or emerging markets whereas most funds are in developed markets.”
The fund sits in the IMA Global sector to avoid the yield restrictions of the Global Equity Income sector, but it is yielding a respectable 3.04 per cent.
Data from FE Analytics shows that the fund has struggled over the past 12 months, returning just 4.02 per cent while the average fund in the IMA Global sector has made 8 per cent.
However, over three and five year periods it is among the top-performers in the sector.
Over three years it is up 30.51 per cent compared with the 19.29 per cent of the sector.
Performance of fund vs sector over 3yrs
Source: FE Analytics
FE Alpha Manager Stuart Rhodes’ portfolio has ongoing charges of 1.66 per cent and requires a minimum initial investment of £500.
Balanced: Invesco Perpetual Global Equity Income
“For a true equity income fund I would go with the Invesco fund,” Deverell said.
“They have always been good for equity income, but what’s good about the global one is it’s run with a team approach.”
“They have a decent European equity income fund and obviously they are good in the UK, so all of those teams feed into the global fund.”
Long-term managers Paul Boyne and Doug McGraw left at the end of 2012 and Nick Mustoe, chief investment officer at Invesco, took over the £553m portfolio.
He implemented a change in strategy which means that Mustoe makes the asset allocation decisions and picks stocks with the regional equity income managers on Invesco’s books.
That means FE Alpha Manager Mark Barnett for the UK, Stephanie Butcher for Europe, Tony Roberts for Japan, Tim Dickson for Asia and Simon Clinch for the US.
Deverell says that this team approach is not only useful in terms of the expertise that the different managers bring to the table, but it also means the portfolio isn’t subject to “key man risk”, which investors in Invesco Perpetual Income and High Income found out can cause problems recently after manager Neil Woodford decided to leave.
“For anybody concerned with manager risk, it’s quite reassuring,” he said.
Our data shows the fund has made 43.88 per cent over the past three years, more than all but one other fund in the IMA Global Equity Income sector, the average fund in which made 27.53 per cent.
Since the change of strategy at the beginning of 2013 it is the third best performing portfolio out of 30, with returns of 26.62 per cent to the sector average of 19.07 per cent.
Performance of fund vs sector and index since Jan 2012
Source: FE Analytics
The fund has five FE crowns and is yielding 2.48 per cent, according to FE Analytics.
It has ongoing charges of 1.69 per cent and requires a minimum initial investment of £500.
Cautious: Newton Global Higher Income
For more cautious investors, AFI panellist Darius McDermott, managing director at Chelsea Financial Services, says that Newton Global Higher Income could fit the bill.
According to our data, the fund is the least volatile in the sector over the last three years, with an annualised volatility of 11.01 per cent to the 13.28 per cent of the sector.
However, bearish positioning has meant that the fund has failed to catch much of the upswing in the markets of recent years.
It is bottom quartile over the past 12 months with returns of 1.3 per cent to the 8 per cent of the sector.
Over three years it is still in the top quartile, however, with returns of 28.89 per cent.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
“James Harries and Newton as a house are not exactly bearish, but they aren’t optimistic,” McDermott said.
“They think there’s still fallout from quantitative easing and tapering to come and some of their other products have underperformed because of that cautiousness.”
The fund has ongoing charges of 1.13 per cent and requires a minimum initial investment of £1,000.
