It is very easy to see why, given its past performance.
According to FE Analytics, the fund – which is headed-up by FE Alpha Manager Stuart Rhodes – has been a top decile performer in the highly competitive IMA Global sector since its launch in July 2008 with returns of 106.81 per cent, beating its MSCI AC World benchmark by 25 percentage points in the process.
Performance of fund vs sector and index since July 2008
Source: FE Analytics
Obviously, past performance is no guide to the future, but the other major reason why it has proven to be so popular with both professional and private investors is due to Rhodes’ strategy in terms of income generation.
The fund sits in the global, rather than global equity income sector, as the manager isn’t overly bothered by headline yield and instead likes to focus on companies that can grow their dividend and deliver a good all-round total return.
This, along with Rhodes’ track record, has meant the fund is now one of the biggest equity offerings in the IMA universe, weighing in at a sizeable £9.2bn.This may cause alarm bells to start ringing for investors, though Rhodes told FE Trustnet last month that as the fund invests in mega-cap stocks and on a global basis, size is not an issue with his portfolio.
“Like all actively managed funds, Global Dividend’s capacity is not infinite, but the fund’s capacity is under constant review and we believe the fund can continue to grow in size without affecting the way we invest,” Rhodes (pictured) said.
That being said, it has started to struggle more recently. Our data shows that the fund has fallen into the bottom quartile over the last year with returns of 4.24 per cent, which is half the return of its benchmark over that time.
Performance of fund vs sector and index over 1yr
Source: FE Analytics
Those lacklustre returns this year also mean it has slipped into the third quartile and has underperformed relative to the index over three years as well.
However, managers should never be judged on such a short time frame, especially as most proclaim to be long-term investors.
Amandine Thierree, fund analyst at FE Research, says M&G Global Dividend’s underperformance this year stems from the Rhodes’ decision to up his exposure to emerging markets on the back of attractive valuations following last year’s ‘taper tantrum’ – as they duly sold-off again in January this year.
On top of that, she says Rhodes’ decision to have little in the way of Japanese equities also hurt him in May and June this year when the Nikkei rallied.
Rhodes currently holds 59.68 per cent in the US, 14 per cent in the UK and 12 per cent in Europe.
The rest is spread across emerging markets and Australia.
A fund like M&G Global Dividend can go through periods of underperformance, given that Rhodes tends to take quite punchy stock calls. His fund is made up of just 46 holdings and his top 10 positions account for more than a third of the portfolio.
However Ben Willis, head of research at Whitechurch, is far more sceptical. He sold the fund earlier in the year and says unit-holders in the fund should consider looking elsewhere.
“It’s a massive fund and the performance has tailed off, which is a shame as Rhodes had been one of the darlings of the industry,” Willis said.
“It had been a core holding for us, but we have sold out so I’m in the ‘fold’ camp. I can see why people will want it but it has lagged and, given the sort of companies it invests in, it shouldn’t be lagging as much.”
“He has a bias towards US equities, which have done well, he focuses on income stocks and yield has been in favour, and he tends to hold established global franchises which are another box ticked. It does make you question why it is lagging, especially as Fundsmith Equity which invests in similar stocks has done well.”
The five crown-rated Fundsmith Equity, which has an AUM of £2.5bn, has been top quartile this year with returns of more than 20 per cent.
Willis continued: “I don’t really know why it has lagged, but I’m sure there will have been stock specific issues. However, has the fact that it has become a leviathan of a fund had something to do with it? Who knows?”
Andy Parsons, head of research at The Share Centre, uses the fund and says investors should certainly not be looking to sell, so should either be holding or increasing their exposure on the back of this period of relative weakness.
While he is usually wary of backing very large funds and is constantly monitoring the portfolio’s AUM, he says investors are wrong to think the size is the reason for its underperformance.
“My slight concern is its size, although it is a global fund,” Parsons said.
“However, Rhodes has a strong track record and though he has struggled this year, I don’t think investors should be concerned and I for one just cannot get wrapped up in short-term performance.”
Parsons points out that, as the table below shows, Rhodes has beaten both the sector and index in every full calendar year since the fund was launched.
Source: FE Analytics
“I’ve got no issues with the short term because Rhodes has shown a fantastic ability to make money. Year to date, am I concerned? No, not at all,” he said.
M&G Global Dividend has a yield of 3.12 per cent and an ongoing charges figure (OCF) of 0.91 per cent.
However, as Parsons has his reservations about the growing size, he says “don’t sell it, but blend it” with the five crown-rated Artemis Global Income fund which is £1.4bn and run by Jacob de Tusch-Lec.
The Artemis fund has been the best performing portfolio in the IMA Global Equity Income sector over three years, though has tended to fall further than the M&G fund during periods of weak market sentiment.
It has a yield of 3.6 per cent and an OCF of 0.87 per cent.
