According to FE Analytics, the fund has been a top decile performer in the IMA Global sector since its launch in July 2008 with returns of 85.17 per cent, beating its benchmark – the MSCI AC World index – by close to 25 percentage points in the process.
Performance of fund versus sector and index since Jul 2008
Source: FE Analytics
It has also outperformed both the sector and index in each calendar year since its launch, a period which includes strongly rising markets like 2013 and falling markets like 2011.
Rhodes has quite a distinctive approach to the global dividend paying market as, instead of focusing on yield, he prioritises income growth and this is the reason why the fund is a member of the global sector instead of the IMA Global Equity Income sector.
It means the fund can have a relatively low yield, although at the moment it is 3.4 per cent, but Rhodes has increased his pay-out in each year since launch.
Though the fund’s past performance has been good and most experts rate Rhodes highly, the major concern is that at £9.2bn it could well be too big to replicate its previously strong returns.
Rhodes has defended the size of his fund on a number of occasions and says his strategy is genuinely scalable because he invests globally, has only ever invested in large-caps and will only hold of the fund 5 per cent in any one stock.
But while Chris Metcalfe, investment director at IBOSS, says Rhodes is a good manager, he is worried about the size of the fund and sold his holding last year.
He has found a replacement in Nick Mustoe’s five crown-rated Invesco Perpetual Global Equity Income fund, which he says has a very similar mandate and, more importantly, it is far more nimble at £700m.
“We like the fact that the Invesco Perpetual fund is smaller,” Metcalfe said. “It is in, what we would class as, the ‘sweet spot’ as the pool of stocks it is fishing in is fine. Although Rhodes invests on a global basis, there must be areas he still can’t reach because of its size – it is massive.”
Mustoe took over the Invesco Perpetual Global Equity Income fund from Paul Boyne and Doug McGraw in December 2012, though it was launched in March 2009.
According to FE Analytics, it has returned 113.05 per cent since launch beating the IMA Global Equity Income sector, which is also its benchmark and has returned 102.39 per cent.
It has, however, underperformed against M&G Global Dividend by 29.45 percentage points over the period.
Performance of funds vs sector since Mar 2009
Source: FE Analytics
It has outperformed Rhodes’ fund over shorter time frames, however, such as over one, three and five years. That is mainly because it has a better track record of protecting capital.
Our data shows Invesco Perpetual Global Equity Income was top quartile in the falling market of 2011 and the M&G fund lost 2.36 per cent.
It also outperforming in this year’s falling market, though it has lost 4.22 per cent.
Mustoe attributes this return profile to his and his team’s focus on income growth rather than just chasing yield.
When asked if it was comparable to M&G Global Dividend in prioritising dividend growth, Mustoe said: “Yes, it does.”
“Dividend growth is the key for us. It’s all about finding companies with good cash flow and that over the long term are growing their dividend payments. It’s not about finding companies with a high starting yield, as many of these go nowhere. It may put you at the top of the sector for yield, but that’s not we’re after.”
Our data shows that if investors had bought £1,000 worth of units in the Invesco Perpetual fund at launch, they would have since earned £242.64 in income.
M&G Global Dividend has paid out more over that time – £365.63 on an £1,000 made in March 2009 – but, as the graph below shows, the data for the Invesco Perpetual fund doesn’t include its September dividend date this year.
Income earned since Mar 2009
Source: FE Analytics
While Mustoe focuses on income growth, he says this is very much a total return fund, just like M&G Global Dividend.
“The market always rewards companies that grow their dividend,” Mustoe explained.
“This fund is as much about total return as it is about income. We’re looking for the companies with a sustainable model going forward – a good track record of growing dividends, good cash flow and very importantly the management has to ‘get it’ – we need to know that they actually care about shareholders.”
“Many are immediately eliminated because their focus is on themselves and not on us.”
The major difference between Invesco Perpetual Global Equity Income and M&G Global Dividend is that they are in different sectors.
However, Mustoe says that if the IMA Global Equity Income yield target becomes too much of a constraint, he will have no issue moving sectors – just like Invesco Perpetual has done with three of its UK income funds.
“It’s certainly a discipline [to hit the 100 per cent yield target] but we don’t screen yields to stay in the sector,” Mustoe said.
“At times it can be tough – especially if the fund performs well and yields go down. At certain times we have been on the edge, but we’re not staying in the sector at all costs. We only invest in companies if we see a good three-year window.”
“For example, at this moment I wouldn’t want to be forced into utilities and consumer staples, which I think are looking overvalued. If I can’t see upside, I’m not investing.”
In terms of portfolio positioning, Mustoe’s big overweight is Europe. The region makes up close to 40 per cent of the portfolio and companies such as Novartis, Roche and Nordea feature in the list of top 10 holdings.
Metcalfe likes this about the fund because he sees it as an area of real value for long-term investors, while he doesn’t like that Rhodes has a high weighting to the expensive US market.
Invesco Perpetual Global Equity Income has a yield of 3.27 per cent and a clean ongoing charges figure (OCF) of 0.92 per cent.
As part of our campaign to make funds’ dividend histories more available, we wanted to point out that neither M&G Global Dividend or Invesco Perpetual Global Equity Income publish their previous annual dividends on their fact sheet.
