UK still number one for equity income, study shows
Global funds have grown in popularity among investors seeking an earnings stream, but FE Trustnet research suggests they would be better off looking closer to home.
IMA UK Equity Income offers higher yields and more FE Alpha Managers and five FE crown-rated funds than its global rivals, according to FE Trustnet
There is a growing industry buzz around dividends being offered abroad, but data from FE Analytics
shows there are 12 funds in the UK Equity Income sector that offer a yield over 5.81 per cent – the highest on offer in IMA Global Equity Income.
There are also 24 funds in the sector with an FE Alpha Manager and nine funds with five FE crowns.
In contrast there are only two funds in the IMA Global Equity Income sector with that rating and only one run by at least one FE Alpha Manager – Newton Global Higher Income
, headed up by James Harries
and Robert Hay
The biggest problem the global sector has when it comes to returns is the relatively short track record of its funds.
Only four have a 10-year record and the best performer – Standard Life Global Equity Income
– wouldn’t make it into the top quartile in the UK Equity Income sector, which contains 103 funds.
The fund has returned 84.96 per cent over the last decade at a yield of just 0.94 per cent, while the best performer in the UK sector is Invesco Perpetual High Income
, which has returned 136.76 per cent with a yield of 3.84 per cent.
Performance of funds over 10-yrs
Source: FE Analytics
The gap between UK and US funds is even starker; in the IMA North America sector there is only one fund with a yield of more than 4 per cent, which is Neptune US Income.
There are 44 funds in the IMA UK Equity Income sector that pay out more.
Fidelity manager Dan Roberts told FE Trustnet
last month that yields were rising in numerous geographical reasons, including Japan.
However, the best yield on offer in the IMA Japan sector is just 2.95 per cent.
In the IMA Global Emerging Markets sector, UBS Emerging Markets
offers a yield of 5.6 per cent, but every other fund offers less than 3 per cent.
There are, however, some European funds with good dividends on offer, although investors would obviously have to be happy to take on the extra risk associated with the continent right now.
Six funds in the IMA Europe ex UK sector offer yields of more than five per cent, the highest of which comes from the Ignis Argonaut European Income
fund, which pays out 6.1 per cent.
One issue facing investors looking for income outside the UK is whether the growing culture of paying dividends abroad will last.
, manager of the Premier UK Strategic Growth
fund, told FE Trustnet recently
that dividends will quickly dry up when the economic circumstances change.
"Companies tell you what you want to hear but when things get tough you will start to see problems," he claimed.
However, AWD Chase de Vere’s Patrick Connolly isn’t convinced.
He said: "The reality is we don’t know what will happen over the course of time and if dividends are cut there’s nothing to stop you changing your holdings then."
Connolly suggests the attraction of global income funds isn’t the yields in themselves but the diversification they offer.
"The top-10 UK yielders in the UK give 50 per cent of the yields, so if you only buy UK equity income funds you’ll be doubling-up your exposure. By going global you get diversity," he finished.