Our research found that the £9bn M&G fund and the £2.7bn Veritas offering are top 10 holdings with 17 different multi-asset funds – two more than the five crown-rated Artemis Global Income fund, which ranked as the third most popular.
Source: FE Analytics
Given the size and long-term track records of the M&G and Veritas funds, it doesn’t come as too much of a surprise that they are such firm favourites with managers.
However, an interesting takeaway from the study is that the experts have been willing to hold them through their underperformance relative to their respective sectors and benchmarks.
Source: FE Analytics
FE Alpha Manager Stuart Rhodes’ M&G Global Dividend fund has been a bottom quartile performer in the IA Global sector and has considerably underperformed its MSCI AC World benchmark over one and three years as a result of very lacklustre returns of 2.34 per cent in 2014, when the wider market delivered double-digit gains.
FE Trustnet dug a little deeper into the fund’s poor performance last year and the drivers of those bottom quartile returns were the subject of much debate between the experts.
One expert said Rhodes’ decision to top up his exposure to emerging market equities immediately before they fell in January last year hurt performance, but others suggested the now £9.1bn size has constrained how the manager can shape the portfolio.
Whatever the reason, it seems that the experts are willing to allow Rhodes a tough year. In fact, when we put together this study last year, it revealed that only 14 funds counted M&G Global Dividend as a top 10 holding, suggesting that some have been buying on its recent weakness.
The fund’s most notable backers are the Jupiter Merlin team of FE Alpha Managers John Chatfeild-Roberts and Algy Smith-Maxwell.
Our data show it’s the tenth largest holding in their £1.7bn Jupiter Merlin Balanced Portfolio and the largest holding in their £4.4bn Jupiter Merlin Income Portfolio, accounting for 11 per cent of their assets.
The managers have close to £600m in M&G Global Dividend across those two portfolios, representing around 6 per cent of Rhodes’ total AUM.
Though the fund struggled last year, it is easy to why M&G Global Dividend has become so popular.
Firstly, Rhodes has a different approach to global equity income as he favours dividend growth instead of trying to hit a yield target; and that’s why his portfolio sits in the global, rather than global equity income sector. Secondly, the fund’s long-term track record is strong.
According to FE Analytics, M&G Global Dividend has been a top quartile performer since its launch in July 2009 with returns of 102.15 per cent, beating its MSCI AC World benchmark by close to 20 percentage points in the process.
Also the fund – which currently yields 3.13 per cent – has beaten both the sector and index in every calendar year since launch except for 2014.
Veritas Global Equity Income, which is headed up by FE Alpha Managers Andy Headley and Charles Richardson, is slightly less popular with fund managers than it was last year as it was a top 10 holding in 18 portfolios in 2014.
Nevertheless, the large majority of its backers have decided to continue to hold the fund despite its bottom decile returns of 1.35 per cent last year.
However, unlike with M&G Global Dividend, the reasons for the Veritas fund’s underperformance are all too clear to see. Our data shows Headley and Richardson were materially underweight US equities, which had a phenomenal run last year as the S&P 500 gained close to 20 per cent.
Instead, the managers held more than half their portfolio across continental Europe and the UK for most of the year – two areas of the market which ended 2014 flat.
Nevertheless, 2014 capped off what has been a difficult run for the fund as FE data shows it has beaten the IA Global Equity Income sector and its MSCI World benchmark in just two of the last five calendar years.
That being said, Headley and Richardson do have some notable supporters. One of which is FE Alpha Manager Bill McQuaker and his Henderson multi-manager team.
They count it as a top 10 holding in five of their portfolios; namely their Henderson MM Distribution, MM Income & Growth, MM Managed, MM Diversified and MM Active funds.
Up until January 2014, Veritas Global Equity Income had been the sector’s best performing portfolio since launch in February 2005 and its returns of 120 per cent were nearly 25 percentage points greater than that of its benchmark.
Fast forward 12 months and the managers’ decision to be severely underweight the US has taken its toll. While the fund has still comfortably beaten the sector, its returns are now much more in line with the index.
Performance of fund vs sector and index since Feb 2005
Source: FE Analytics
Jacob de Tusch-Lec’s Artemis Global Income fund has become increasingly popular with both private and professional investors alike and that is reflected in the fact that 15 funds now count it as a top 10 holding, nine more than this time last year.
The 15 funds which hold it include HSBC Income Fund of Funds and FE Alpha Manager David Coombs’ Rathbone Multi Asset Total Return Portfolio.
The four crown-rated fund has now grown to £1.7bn and it isn’t difficult to see why. Our data shows Artemis Global Income has topped the IA Global Equity Income sector since its launch in July 2010 with returns of 103.47 per cent. Its benchmark – the MSCI AC World index – is up 66.46 per cent over that time.
Performance of fund versus sector and index since July 2010
Source: FE Analytics
Though the fund delivered third quartile losses of 5.43 per cent in 2011, it was top decile and beat its benchmark in 2012, 2013 and 2014. It is also top decile so far this year.
Outside of M&G Global Dividend, Veritas Global Equity Income and Artemis Global Income, fund of funds managers don’t seem too interested in global equity income funds.
The other two funds to appear on the list are James Harries’ £4.4bn Newton Global Higher Income and Daniel Roberts’ £107m Fidelity Global Dividend fund, which feature in eight and five lists of top 10 holdings respectively.
Newton Global Higher Income is one of the most defensive portfolios in the global equity income space due to the manager’s relatively bearish view on the global economy.
It has comfortably outperformed both the sector and its FTSE World benchmark since its launch November 2005 and that cautious positioning has meant the fund has outperformed over one, three and five-year periods as well.
Harries’ fund has also had the best Sharpe ratio – which calculates risk-adjusted returns – and second best maximum drawdown – which measures the most an investor would have lost if they had bought and sold at the worst possible times – in the sector since its launch.
Its supporters include HL Multi Manager Income & Growth, HSBC Income Fund of Funds and IFSL Brooks Macdonald Cautious Growth.
However, apart from Richard Scott and Daniel Lockyer’s five crown-rated PFS Hawksmoor Vanbrugh fund, all the portfolios which hold Fidelity Global Dividend as a top 10 holdings are funds run by Fidelity.
