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The fund beating M&G Global Dividend at its own game

02 July 2014

The £9bn M&G fund is a favourite with investors, but there is an up-and-coming rival with a similar appetite for dividend growth and a better performance record to boot.

By Daniel Lanyon,

Reporter, FE Trustnet

The £953m Artemis Global Income fund is better placed to outperform in the coming years than its more popular rivals such as M&G Global Dividend and Newton Global Higher Income, according to Hawksmoor’s Richard Scott.

The fund of funds manager holds it as a top-10 holding in both his Hawksmoor Vanbrugh and Hawksmoor Distribution funds and says the fund’s manager Jacob De Tusch-Lec should outperform FE Alpha Manager Stuart Rhodes and James Harries at M&G and Newton, respectively.

“It is a fund that we have held since launch. We bought it on day one and have continued to hold it throughout. We very much feel it is a good rival to the bigger and better known Global income funds such as M&G Global Dividend,” he said.

“Jacob is very flexible and has moved the portfolio around quite significantly with a focus on fundamental value, which has seen him buy into Europe comparatively early and last year into emerging markets at a very good time.”

Scott thinks the mass inflows into M&G Global Dividend will make it harder for Rhodes to tap into opportunities at the lower end of the market, adding that it would take him longer to make significant stock and sector shifts.

The M&G fund has grown particularly rapidly over the past three years to £9bn from just £1bn in 2011.

According to FE Analytics, the £9bn fund is a strong performer, beating its IMA Global sector and MSCI World benchmark over three and five year periods, and since its launch in 2008.

One year returns of just 7.01 per cent are below verge, however.

The much smaller Artemis Global Income fund has surged past its rival in recent years however, outperforming it over one and three years, and since its launch in July 2010.

Performance of funds and index since July 2010


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Source: FE Analytics

Since inception De Tusch-Lec has returned almost 22 percentage points more than Rhodes.

The Artemis fund has almost exactly the same volatility as M&G Global Dividend over the period, meaning that it comes easily on top from a risk-adjusted return point of view.

Rhodes does have a better record in down markets however, as shown by performance in 2011.

Artemis Global Income, which has five FE crowns, is number one in its IMA Global Income sector since launch.

The fund has doubled in size over the past 12 months, but with assets still under £1bn, Scott says it has more than enough flexibility.

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Source: FE Analytics


The two rivals sit in different sectors, with M&G’s emphasis on dividend growth and total return seeing it choose IMA Global over IMA Global Equity Income, which has a stricter yield requirement.

Artemis Global Income has a keen emphasis on dividend growth however, and indeed De Tusch-Lec says it is an increasing priority in the fund’s strategy.

“More than most [global income portfolio], my fund has a value bias and less of a clear-cut quality bias. This has been a good strategy of late. Buying stocks that were too cheap has not been a bad thing to do,” he explained.

“However, equities that deliver steady, growing and stable dividend yields have become relatively more interesting recently.”

“Global income has been the place to be over the past five years so some of the out performance of the fund has been about being in the right part of market.”

Artemis Global Income consistently yields more than M&G Global Dividend, with the current figures at 3.74 and 3.08 per cent, respectively.

Both funds have a strong record of growing their own dividend.

While De Tusch-Lec has put more of an emphasis on quality stocks that offer dividend growth recently, he is much more flexible in his approach than Rhodes, and would tap into higher yielding stocks at the expensive of dividend growth if his outlook changed.

Rhodes, on the other hand, is much more rigid in style, and only invests in companies that he thinks can grow their dividend.

This means he tends to have more than a quality bias, which goes some way in explaining why he tends to hold up better in falling markets.

De Tusch-Lec initially had a quality bias in Artemis Global Income when he launched it in 2010, but benefited from switching into higher yielding stocks in Europe in the aftermath of the eurozone crisis in late 2011.

He says he is still finding European companies with good growth potential from both a share price and dividend point of view, which explains why he has 45 per cent invested in the continent.

However, he believes it will be harder to make money in Europe from hereon in.

“My positioning when I launched the fund had a big quality tilt; holding big companies, global mega-caps and dividend compounders – all stuff that was a good place to hide in when we didn’t know what the hell what going on,” he said.

“But then we rotated into European value, buying utilities in southern Europe that were horrendously cheap and other things trading at low p/e [price-to-earning] multiples, knowing that they were not very high quality.”

“Europe used to be super cheap because things were super bad but now things are only bad. Valuations are ok.”

“There are some great income opportunities but as a whole, buying the index won’t make you money.”

M&G Global Dividend, which has three FE crowns, has just under 14 per cent in Europe. The US is Rhodes’ favoured region, making up more than 50 per cent of assets.

De Tusch-Lec has much less in North America [29 per cent], pointing to the Fed’s tapering of quantitative easing as a reason to be more cautious. This element of uncertainty has led him to position the fund more defensively in general.

“We are at the cusp of saying goodbye to five years of policy that we are never going to see again and therefore if you are playing a three year view things are going to get tricky,” he explained.

“This year has been strange because nothing has happened the way we expected, but the fund is up and doing very well.”

Performance of funds and index in 2014

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Source: FE Analytics


“The problem with the market now is that certain macro factors are driving everything. I find myself discussing US bond yields a lot.”

“I also thought the taper would mean markets became a bit wobbly and the risk premium would go up. This hasn’t happened yet but it will happen in the next 12 months.”

“I’m currently hedging my bets so I hold US life insurers and mortgage backed securities REITS. Between them you are getting a five per cent dividend yield and you are hedging out your interest rate exposure,” he added.

Artemis Global Income is gaining traction with fund of funds managers, appearing in the top-10 of eight portfolios in the IMA universe.

These include FE Alpha Manager David Coombs’ Rathbone Multi Asset Total Return Portfolio.

M&G Global Dividend remains the more popular choice however, held by 13 fund of funds overall.

Bill McQuaker’s Henderson multi-manager team are among Rhodes’ biggest fans.

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