Between 1 January 2007 and 31 December 2013 the average fund in the IMA UK Equity Income sector paid out £287.51 on an initial investment of £1,000. This period includes 2008 and 2009, when total dividends paid in the FTSE All Share index dropped by respective 25.2 per cent and 13.9 per cent.
The highest paying UK fund over the seven-year period was Thomas See’s Schroder Income Maximiser, which generated £480.63 on an initial £1,000. Newton Higher Income followed with a total payout of £365.96 while Threadneedle UK Equity Alpha Income paid out £340.67.
UK investors tend to have a home bias when it comes to income, given the strong reputation of domestic companies for paying and growing dividends. The IMA UK Equity Income sector has total assets of £54.1bn; just £11.9bn is held with global equity income funds.
FE Analytics shows that Veritas Global Equity Income, which is run by FE Alpha Manager Andy Headley and Charles Richardson, is the IMA Global Equity Income member that has paid out the most over the market cycle - £376.28 on an initial £1,000.
This means that only Schroder Income Maximiser has paid out more in the UK peer group.
The £2.7bn fund performed well in the recent income study carried out by the FE Research team, picking up 260 points out of a total possible score of 300 and being ranked the eighth best global fund. It scored 95 points out of 100 for its yield, 97 for dividend stability and 68 for downside protection.
In total return terms the four FE Crown-rated fund is up 131.17 per cent since launch in February 2005 compared a 112.69 per cent rise in its MSCI World benchmark and a 98.33 per cent return from its average peer.
Performance of fund vs sector and index over 7yrs
Source: FE Analytics
Headley and Richardson run the portfolio on a real return basis, which has allowed it to achieve strong performance in both rising and falling markets. Although they focus on strong dividend payers, the managers do not invest in high yielders that are unlikely to help grow capital.
Veritas Global Equity Income has a total expense ratio of 1.16 per cent and has a running yield of 4.5 per cent, according to its latest factsheet.
Second place in the global space’s income payers is the £4.3bn Newton Global Higher Income fund, managed by James Harries (pictured). It has paid out £369.56 on an initial £1,000, which again is beaten by only Schroder Income Maximiser.
Newton Global Higher Income, which has Nick Clay as deputy manager, appears on the FE Research team’s Select 100 list of preferred funds where it is noted for its cautious positioning and reluctance to chase yield. It also came in 12th place in the team’s income study with a score of 252 out of 300. It was awarded 97 points for yield, 62 for dividend stability and 93 for downside protection.
Over five years the fund sits in the sector’s first quartile with a return of 69.27 per cent. Over one and three years it is third quartile after its cautious slant caused it to underperform its peers in the strongly rising markets of 2013.
Performance of fund vs sector and index over 7yrs
Source: FE Analytics
Newton Global Higher Income has a clean ongoing charges figure (OCF) of 0.80 per cent and yields 3.70 per cent.
Mark Whitehead’s Sarasin Global Higher Dividend paid out £335.49 on an initial £1,000 in the seven years following 1 January 2007. This means only three UK funds have paid out more - Schroder Income Maximiser, Newton Higher Income and Threadneedle UK Equity Alpha Income.
The £428.6m fund ranked fourth in the FE Research income study, winning 98 points for yield, 88 for dividend stability and 79 for downside protection - giving it a total of 265.
Its portfolio is constructed around a number of themes. Some 25.3 per cent is currently in ‘security of supply, 24.1 per cent in ‘franchise power’ and 21.3 per cent in ‘the strong get stronger’, with other buckets including ‘corporate restructuring’ and ‘disruption & innovation’.
FE Analytics shows it has lagged its peers over five years but sits in the first quartile over one year and the second quartile over five. Since Whitehead took over the portfolio in May 2006 it has returned 70.60 - just outpacing the 69.86 per cent average gain of its peers but underperforming the MSCI World’s 76.66 per cent rise.
Sarasin Global Higher Dividend has a clean OCF of 0.99 per cent and yields 4.44 per cent.
The final IMA Global Equity Income fund that has paid out more than its UK rivals over the past market cycle is Liontrust Global Income, which is just ahead with £288.61 income earned on an initial investment of £1,000.
It is important to note that this fund used to be in the IMA UK Equity Income sector until it adopted a global mandate and switched sectors in 2013.
Managed by James Inglis-Jones and Samantha Gleave, the £249.6m fund has four FE Crowns and has returned 127.15 per cent since Inglis-Jones took over in March 2009. In comparison, the average fund in the sector is up 100.16 per cent while the MSCI World has gained 110.98 per cent.
Performance of fund vs sector and index over manager tenure
Source: FE Analytics
The fund is the highest ranked in the FE Research income study out of the global portfolios examined in this article. It came in third place with a score of 266, made up of 99 points for yield, 98 for dividend stability and 69 for downside protection.
Its managers follow the Liontrust Cashflow Solution investment process, which sees it only invest in high-yielding stocks where unusually strong cash flows are combined with low profit expectations from investors.
Liontrust Global Income has clean ongoing charges of 0.91 per cent and yields 4.84 per cent.
