Some £1.6bn has been redeemed from the now £7.2bn M&G Global Dividend fund since the start of 2015, according to FE data, possibly as a result of the portfolio’s recent stark underperformance relative to both its peers and benchmark. 
As FE Trustnet recently highlighted, Stuart Rhodes’ M&G Global Dividend fund has been through a very difficult 18 months or so.
While the fund beat both the IA Global sector and its MSCI AC World index in its first five consecutive calendar years and has grown its dividend in every year since its launch in August 2008, its bottom-decile gains of just 2.6 per cent last year and its double-digit losses in 2015 have meant the once top-performing fund is now very much in line with the index since inception.
Performance of fund versus sector and index since launch
Source: FE Analytics
Rhodes has explained that the recent underperformance has been due to his style falling out of favour, as his focus on dividend growth and undervalued companies has led him to overweight positions in commodity-related companies and emerging market equities – both of which have had a torrid time of late.
Nevertheless, many investors have called time on M&G Global Dividend as it is now the most sold IA Global fund over three, six and 12 months.
Of course, selling a fund after it has gone through a period of underperformance can often be the worst time to do it and given Rhodes is now holding predominantly lowly-valued companies, many experts are expecting the fund to rebound.
However, for those who have sold fund and are now sitting on cash, here we highlight three possible alternative global equity income funds for them to consider.
Saracen Global Equity Income & Growth – for those who want a similar income growth approach
One of the most distinctive aspects of Rhodes’ fund is its focus on dividend growth rather than headline yield – indeed that is why M&G Global Dividend sits in the IA Global rather than IA Global Equity Income sector with its yield criteria.
The manager has stuck to his task well by increasing his distribution in every year since launch, but for those who want a similar approach, Square Mile says David Keir and Graham Campbell’s Saracen Global Equity Income & Growth fund is run along similar lines.
“As the team's emphasis is upon revenue, profits and dividend growth rather than solely high yielding companies, the fund may well have a lower headline yield than many of its global equity income peers,” Square Mile said.
“However, because of this it also has the ability to generate strong income growth over time. There is a clear and understandable modus operandi in place, with the team aiming to invest in global leaders that have the propensity to continue to grow over the next five years.”
According to FE Analytics, the £51m fund has managed to increases its dividend in each of three full calendar years since its launch in July 2011.
Saracen Global Growth & Income’s dividend history
Source: Square Mile/FE Analytics
However, the fund (which is also considerably overweight global emerging markets and Asia Pacific) has been hit hard, like the M&G fund, by the recent equity rout meaning its outperformance in its first few years has been wiped away.
The fund, while ahead of the sector average, is now underperforming against its FTSE All World benchmark since launch with returns of 37.90 per cent. It has, however, outperformed M&G Global Dividend over that time.
Given what the fund is aiming to do (it invests in ‘global leaders’ and counts the likes of Roche, HSBC and General Electric as top 10 holdings) and following its recent falls, Square Mile says it will suit certain investors.
“For investors seeking a proposition focused more on a growing income stream rather than just income, companies with sustainable long-term growth potential and capital protection through the avoidance of riskier business models then this is a fund definitely worth considering,”
The fund yields 2.8 per cent and has an ongoing charges figure (OCF) of 1.03 per cent.
Invesco Perpetual Global Equity Income – for are looking for a smaller fund
One of the major criticisms of M&G Global Dividend is its AUM (which currently stands at £7.2bn but peaked at £9.5bn last year).
Those concerns seem to be valid given the fund started to underperform during a period when Rhodes’ assets surged, but the manager has stressed on a number of occasions that he has faced no capacity constraints.
A number of leading fund buyers, such as Charles Stanley Direct’ Rob Morgan, agree with him and argue that size isn’t a concern as the manager has always been in very large, liquid stocks.
Nevertheless, certain experts have expressed worries about the level of the fund’s AUM and have therefore looked for other alternatives – such as iBoss’ Chris Metcalfe who sold out and replaced it with Nick Mustoe’s £780m Invesco Perpetual Global Equity Income fund last year.
“We like the fact that the Invesco Perpetual fund is smaller,” Metcalfe said. “It is in, what we would class as, the ‘sweet spot’ as the pool of stocks it is fishing in is fine. Although Rhodes invests on a global basis, there must be areas he still can’t reach because of its size – it is massive,” Metcalfe said.
The Invesco Perpetual fund has been run by Mustoe’s team since December 2012 over which time it has outperformed both the IA Global Equity Income sector average and the MSCI AC World index with returns of 34.32 per cent.
Performance of fund versus sector and index since Dec 2012
Source: FE Analytics
The team also aims to deliver a growing source of income, a feat it has so far achieved. According to FE Analytics, it has increased its dividend in every full calendar year January 2010. Its overall dividends paid out over that time are lower than the sector average, however.
Invesco Perpetual Global Equity Income is a relatively concentrated portfolio 53 holdings and is biased towards mega-caps. The fund, which yields 3.08 per cent and has an OCF of 0.92 per cent, is quite heavily exposed to the UK though at 23.12 per cent which is worth noting for those who already hold an IA UK Equity Income fund.
Artemis Global Income – for those who want to diversify away from the UK
One of the main reason investors use global equity income funds is to diversify away from the often concentrated UK dividend-paying market, but many portfolios in the sector will still buy some of the most widely-held FTSE stocks.
In fairness, M&G Global Dividend holds 16 per cent in the UK, which is lower than the IA Global Equity Income sector average – but still owns the likes of British American Tobacco and Imperial Tobacco.
For those investors who want even less in the UK, though, they may wish to consider Jacob de Tusch-Lec’s £2.4bn Artemis Global Income fund.
It was designed to sit alongside the group’s flagship income fund managed by Adrian Frost and Adrian Gosden and therefore holds just 10 per cent in the UK and those positions are limited to smaller companies which are less widely held in the domestic peer group. Instead, the fund has 40 per cent in Europe, 26 per cent in the US and 10 per cent in Asia.
As a result, Square Mile says it is an interesting proposition.
“This strategy differentiates itself versus many of its peers both by steering away from the more traditional income stalwarts and by combining stock selection with a consideration of the macro backdrop,” Square Mile said.
“This fund offers good diversification benefits and it has been designed to complement more core strategies.”
Artemis Global Income was launched in July 2010 over which time it has been the IA Global Equity Income sector’s best performer with returns of 93.43 per cent, beating its MSCI AC World benchmark by close to 40 percentage points.
Performance of fund versus sector and index since launch
Source: FE Analytics
It has outperformed its benchmark in every calendar year since launch and was top quartile in 2012, 2013 and 2014 and is currently top quartile again in 2015.
The fund, which currently yields 3.9 per cent, has also been the third highest income paying fund in the sector over that time having increased its dividend in three out of the last four calendar years. Its OCF is 0.84 per cent.
