Why you should look to global funds for income
The Share Centre's Sheridan Admans says the growing number of income-seeking investors would be advised to diversify their investments with a global income fund.
Income-seeking investors should buy global funds to increase their chances of earning dividends and lower their risk, according to the Share Centre’s investment research manager Sheridan Admans.
With interest rates at historic lows and inflation still above the Bank of England's target of 2 per cent, an increasing number of investors are taking on the extra risk involved in holding equities to prop up their level of income.
However, Admans urges investors to look more closely to global funds, which can limit the risk through diversifying across geographies and sectors.
“A global fund provides investors with access to companies, sectors and assets that region specific bias cannot deliver directly and global income managers can get exposure to the best in class rather than being confined to regional options,” he said.
Typically investors see investing overseas as being riskier, but Adman says that a global fund rather than a country or region specific fund can mitigate that risk, and adds that the weak economic performance of developed markets carries its own risk.
“Economies such as China and India have been growing fast, often generating national wealth as well as increasing the spending power of their citizens. Having a stake in this changing balance of economic activity provides a good hedge against the prospects of slower growth in more mature economies,” he said.
He suggests M&G Global Dividend
and First State Global Listed Infrastructure
as two portfolios for investors to consider.
M&G Global Dividend was launched in August 2008, and data from FE Analytics shows that it has beaten the First State fund, the MSCI World index and its IMA Global sector substantially since then, returning 51.7 per cent.
Performance of funds vs sector and index
Source: FE Analytics
First State Global Listed Infrastructure was launched in October 2007, and has made 24.35 per cent since that date, recovering after a slump of 25 per cent in its first few months.
M&G Global Dividend is available with a minimum investment of £500 and a top-up of just £10, while First State Global Listed Infrastructure requires £1,000 as an initial investment and £500 thereafter.
The global horizon of the funds supplies them with a far greater range of investment possibilities than UK-focussed funds have.
“The risk of only investing in the UK is the limitation of diversification," Admans explained. "The argument for regional diversification within a portfolio is emphasised by the fact that in the UK there are 95 companies that have a market capitalisation over £500m and offer a 4 per cent income yield or higher, whilst globally there are 1,522 such opportunities.”
Admans does recognise some benefits in buying UK funds, however.
“The benefit of investing in UK companies is the limited exchange rate risk an individual is likely to suffer on the income distribution and the transparency of the UK’s regulatory and political systems," he said.
Out of the UK-focussed income funds he picks Invesco Perpertual High Income
, Rathbone Income
and Fidelity Enhanced Income