M&G Global Dividend has shed £2.3bn of investors’ cash in the past 12 months, according to data from FE Analytics, making it the third most heavily sold fund in the 3,500-strong Investment Association universe.
Longer term the fund counts as a stronger performer but in more recent years it has significantly underperformed its peers as well as the broader equity market. However, in the first four months of 2016 it has come storming back.
Stuart Rhodes has headed up the fund since it launched 2008, clocking up a top-quartile 111.19 per cent total return. In comparison the average fund in the IA Global sector has made 67.14 per cent while the MSCI AC World index gained 87.71 per cent.
Performance of fund, sector and index since launch
Source: FE Analytics
While this is no doubt a pleasing long-term performance, more recently the fund has suffered relative to its peers. It was bottom quartile in 2014 and bottom decile in 2015. The fund is now bottom decile over three years, in addition to underperforming its sector and index over five years.
However, the fund has somewhat bounced back in 2016, having returned substantially more than both its average peer and the index.
Performance of fund, sector and index in 2016.
Source: FE Analytics
Adrian Lowcock, head of investing at AXA Wealth, agrees that the manager’s conviction on these areas was a driver of his underperformance after he moved more and more into areas of the market susceptible to a weaker economic environment.
“Rhodes has suffered from the fall in the oil price at the end 2014. The fund’s focus on companies delivering dividend growth has led to bias towards the more cyclical materials and energy sectors, which have hurt performance again in recent months,” he said. 
However, Lowcock notes that Rhodes’ (pictured) process of finding dividend growth stories was a strength during and in the aftermath of the financial crisis but this became harder as the market recovered.
“It has been a strong performer since the financial crisis as the focus on dividend growth lends itself to investing in good quality businesses,” he said.
“The fund has struggled more recently as it has become much harder to find companies which generate an attractive and growing yield at a reasonable or fair price with many areas becoming relatively expensive.”
“In spite of the short-term headwinds Rhodes continues to stick to his process and has conviction in his ideas, which is good to see and suggests he continues to believe the process is the right one.”
Others pointed to the growing size of the fund, which peaked at £9bn in 2014, as another reason for its underperformance since then, but Charles Stanley Direct’s Rob Morgan says he doesn’t think this is correct.
He says he continues to like the fund and the process employed by Rhodes despite the underperformance see in recent years and is sticking with his holding.
“We believe the fund has the scope to add value in various market conditions, not merely when the dividend paying stocks are fashionable, and whilst shorter term performance has not been as strong as its longer term returns, we do not believe the growing size of the fund is an impediment to it beating its benchmark over the long term,” he said.
Chelsea Financial’s Darius McDermott says the fund is a screaming buy at current valuations.
“We supported just after launch it then performed very well for the next four years. Rhodes built the process and we are confident in him to deliver in the long term. It, as the numbers show, has had a difficult period,” he said.
“The first cut in the oil price was a factor and he added to some of those positions which hurt as oil weakened further.”
“We tend to take a long-term view on funds and, while we are disappointed with the three-year numbers, are pleased to see the six months numbers returning to the first quartile.”
Just over half of the fund’s assets are currently in US stocks, a climb down from higher US exposure last year and about the same as the index. Rhodes has also increased exposure to the UK, which is his largest overweight position alongside Canada. The fund is also overweight Australian stocks and has some small weightings in Europe.
In terms of risk metrics, the fund is in the bottom quartile for annualised volatility and is third quartile for maximum drawdown but is top quartile for alpha generation since launch.
An initial £10,000 investment when Rhodes took over would have generated an income stream worth a total £3,330.22.
Income earned since July 2008
Source: FE Analytics
The fund has a clean OCF of 0.91 per cent and has a current yield of 3.44 per cent.
