Earlier this week, the latest edition of the Henderson Global Dividend Index found that dividends paid by UK businesses in the second quarter of the year had dropped behind those from the rest of the developed world.
When the impact of special payouts from the GlaxoSmithKline and Intercontinental Hotels are stripped out, underlying dividends in the UK dropped by 3.3 per cent year-on-year; in contrast, global dividends were up 1.2 per cent on an underlying basis.
Alex Crooke, head of global equity income at Henderson Global Investors, said: “The shifting fortunes of different parts of the world highlight the value of taking a global approach to income investing.” With this in mind, we look at the some of the IA Global Equity Income that are backed by analysts from FE Research and Square Mile.
This £1.2bn fund, which is managed by the FE Alpha Manager duo of Andy Headley and Charles Richardson, is the only one on our shortlist to have underperformed its sector average over the past three years with a 27.08 per cent.
However, this is largely down to the fact that value style of investing which is followed by the fund has largely been out of favour in recent years. Over the past 10 years, the Veritas fund has been able to outperform its average peer and MSCI World benchmark - by a significant margin in the case of its average peer.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
Square Mile gives the fund an ‘AA’ rating but notes that it should be held with a long-term mentality, as the managers take a different approach to most other global portfolios.
“Veritas have no immediate concern about matching the returns of the wider market or about replicating exposures found in the benchmark. This results in a differentiated product that we feel should be of interest to many clients,” the investment consultancy said.
“The fund will almost inevitably lag towards the end of a bull market when valuation metrics become too rich but one of the keys to the success of the strategy is the managers' ability to deploy cash reserves once valuations correct and become more attractive. Investors will require patience but the team have put together an enviable long-term track record that is significantly ahead of the World index.”
Veritas Global Equity Income has a total expense ratio of 0.90 per cent. An initial investment of £10,000 made three years ago would have since generated £1,254 in income payments. It has also only cut its dividend in one year since its launch.
Henderson Global Equity Income
This £736.1m fund, which holds an ‘A’ rating from Square Mile, is managed by Andrew Jones and Ben Lofthouse. Over the past three years, Henderson Global Equity Income has made a 40.47 per cent total return – outperforming its average peer but narrowly lagging the MSCI World.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
The track record on this strategy only goes back to May 2012, when it was launched following the merger of a number of Henderson’s funds and the mandate was changed. The managers aim to produce a growing and reliable income stream, through a philosophy based on the view that high yielding companies with the ability to grow their dividends will outperform over the long term.
“Though the strategy itself does not yet have a long history in place, both managers have fairly extensive experience of managing income mandates,” Square Mile said.
“The managers also have a good understanding of where their edge is and where it is not, and they are committed to concentrating on managing an equity income growth proposition. For the longterm investor seeking gradual income growth and exposure to a blue chip evergreen portfolio this could be viewed as a suitable vehicle.”
Henderson Global Equity Income has an ongoing charges figure (OCF) of 0.85 per cent and is yielding 3.20 per cent. An initial investment of £10,000 made three years ago would have since made £1,172 in income payments.
Jacob de Tusch-Lec has run this £3.1bn fund since its launch in September 2010 and has built up a strong track record, turning in top quartile returns in 2012, 2013, 2014 and 2015. It’s the best performing fund of the sector over five years, although it has fallen into the bottom quartile over 2016 so far.
Performance of fund vs sector and index since launch
Source: FE Analytics
The fund holds an ‘A’ rating from Square Mile and is a member of the FE Invest Approved List. The FE Research team said: “Jacob de Tusch-Lec uses a proven approach to select stocks based on their dividend potential. We have been impressed not only by the manager’s capacity to read the macro environment, but also in understanding the dynamics of global equity markets.”
De Tusch-Lec uses the approach that has been implemented with success on Adrian Frost and Adrian Gosden’s Artemis UK Income fund, whereby companies are deemed attractive if they have plenty of cash left after they have covered all their expenses. Valuation is also an important consideration.
Artemis Global Income has a 0.81 per cent OCF and is yielding 3.32 per cent. It has paid £1,026 on an investment of £10,000 made three years ago.
Manager Nick Clay only look over this fund in December 2015, having previously been deputy to James Harries, but in this short time has made 30.63 per cent and outpaced both the sector and the FTSE World index. It is an FE Invest Approved List member and hold a Square Mile ‘A’ rating.
Performance of fund vs sector and index under Clay
Source: FE Analytics
In line with other Newton funds, it follows a thematic approach that uses macro trends to guide stock selection in areas likely to benefit from superior growth. It also only invests in companies with an income distribution 25 per cent over the FTSE World’s and will sell a holding if its yield falls below the benchmark’s.
“The fund managers are supported by a large team of analysts and by the central macroeconomic themes of Newton that, although it seems unlikely, are flexible and could change if the perception of markets does,” FE Research said.
“Due to this collegial approach and Nick Clay’s familiarity with the process, we don’t believe that the departure of James Harries will have an impact. This fund should continue to be a risk-averse way for investors to gain a geographically flexible equity income holding.”
Newton Global Income has a 0.79 per cent OCF and is yielding 2.91 per cent. An investment of £10,000 made three years ago would have paid out £1,204 of income since.
This fund, which is managed by Dan Roberts and is another member of the FE Invest Approved List, has made a 51.79 per cent total return over the past three years – ranking it third in the sector and beating the benchmark by close to 10 percentage points.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
Roberts runs a concentrated portfolio of around 50 stocks, which are chosen through a process has a long-term approach to valuation and concentrates on a company’s cash conversion over a three-year time horizon. He is also willing to go against the market and hold stocks until his investment case comes to fruition.
FE Research said: “Roberts’ approach to equity income investment is not revolutionary and does not differ too much from other equity income managers. Nevertheless, Roberts has been more successful in implementing it as he may be more patient than its peers.”
“We believe this fund is a no-brainer for cautious investors searching for a global source of dividends.”
Fidelity Global Dividend has an OCF of 0.98 per cent and yields 2.53 per cent. It has paid out £1,030 on an £10,000 initial investment made three years ago.
