Henderson Global Equity Income, Liontrust Global Income and Newton Global Income are among several funds in the sector that have increased their pay-outs each year over the last five while paying above-average dividends, according to research from FE Trustnet.
This comes as the second half of a series; earlier this week, we focused on the UK equity income funds that have managed the same feat.
While our research found eight funds that met our chosen criteria, only four within the IA Global Equity Income sector managed to do so.
To re-cap, we made a list of all funds in the sector with at least a five-year track record of paying dividends to the end of 2016, which have grown these annually over this time frame based on an initial £10,000 investment.
We then calculated the median of each of these pay-outs and compared them to the sector’s overall median pay-out based on the same amount over five years. This meant our original list of 21 funds fell to just four and, in terms of the number of current constituents of the entire sector, means just 8 per cent managed to meet our criteria. They are shown in the table below:
Source: FE Analytics
The fund on the list that achieved the biggest median pay-out is Sarasin Global Higher Dividend (Sterling Hedged), which has paid out an average of £622.24 annually over the last five years based on an initial £10,000 investment. Between the start of 2012 and the end of 2016, it has increased its dividend by 38 per cent.
The £159m fund aims to provide an income that is at least 50 per cent higher than the MSCI World index as well as some long-term capital growth in sterling terms. Given that growth isn’t its primary aim, the fund has underperformed its average peer by 8.03 percentage points over the time frame in question with a total return of 68.33 per cent.
However, it has achieved a top-decile annualised volatility and a maximum drawdown of 9.74 per cent, which is lower than that of its benchmark and average peer. This would suggest the fund is better-suited to investors willing to sacrifice capital gains for lower levels of risk.
Managers Guy Davis and Guy Monson adopt a thematic approach to investing and divide their holdings into five categories: ‘The Strong get Stronger’, ‘Franchise Power’, ‘Security of Supply’, ‘Corporate Restructuring’ and ‘Disruption and Innovation’. They also look for stocks that offer potential for company profitability, good performance and attractive income levels.
Examples of its largest holdings include JP Morgan, US pharmaceutical company Pfizer and Prudential. The fund currently yields 3.11 per cent.
The next fund on the list for its median five-year annual pay-out of £640.66 on a £10,000 investment is Liontrust Global Income. Headed up by James Inglis-Jones and Samantha Gleave, the £172m fund has grown its pay-out between the start of 2012 and the end of 2016 by 12 per cent.
In terms of its total return over this time frame, it has returned 79.98 per cent compared to its average peer’s return of 76.36 per cent. However, investors should note it is in the bottom quartile for its maximum drawdown of 13.35 per cent as well as its annualised volatility.
Performance of fund vs sector over 5yrs to 2017
Source: FE Analytics
The managers aim to provide a high level of income with capital values keeping pace with inflation over the long term. They do so through only holding high-yielding stocks with very strong cash flows but have low profit expectations from the broader market. Its largest holdings include Vodacom Group, Ashmore Group and Rio Tinto. It currently yields 4.85 per cent.
Next up is Henderson Global Equity Income, which is managed by Ben Lofthouse and Andrew Jones. Based on an initial £10,000 investment, it would have paid out an average of £494.22 per annum over the last five years to the end of 2016. Its payout has grown by 33 per cent over this time frame.
The managers aim to provide a growing and reliable stream of income as well as some capital appreciation over the long term; they do so through a relatively concentrated portfolio of between 50 to 80 stocks.
Over five years to 2017, the fund has outperformed its average peer by 25 percentage points with a total return of 101.77 per cent. It has done so with a maximum drawdown of 9.83 per cent, which is lower than that of its MSCI World benchmark’s and its sector average. However, it has struggled to beat its benchmark’s total return of 106.39 per cent over this time frame.
The research team at Square Mile, which has awarded the fund an ‘A’ rating, said: “The investment process, with a focus on companies delivering sustainable and growing dividends with strong balance sheets and cash flow generation, is sensible and should naturally lead to a more defensive return profile.
“This means the fund may operate with lower volatility than its benchmark, the MSCI World Index, but could lag in aggressive up-markets.”
Henderson Global Equity Income currently yields 3.3 per cent.
The fourth and final fund on the list is Newton Global Income, which has also seen the biggest median payout increase over five years at 45 per cent. Its median payout over this time frame is £486.35.
The four crown-rated fund is headed up by Nick Clay and Ian Clark, who took to the helm of the fund in 2015 and 2017 respectively following the departure of James Harries.
Over five years to 2017, the £5.5bn fund has returned 97.84 per cent compared to its average peer’s return of 76.35 per cent.
As with Henderson Global Equity Income, it has also struggled to beat its benchmark over this time frame, however. As documented in previous FE Trustnet articles, global equity funds often struggle to beat their benchmarks due to the indices’ large weightings to the US and the breadth of their investable universe.
Performance of fund vs sector and benchmark over 5yrs to 2017
Source: FE Analytics
Clay and Clark aim to provide an attractive and growing stream of income through Newton’s top-down thematic approach, which focuses on long-term structural changes and analyses opportunities from a global perspective.
The research team at Square Mile said: “As a result of the process, the fund can take meaningful positions away from its FTSE World benchmark. This can result in the portfolio, at times, looking markedly different from this index.
“As a consequence performance over shorter time frames could also be variable but we would expect this strategy to deliver attractive returns over the longer term.”
Funds that fell just short of making it onto the list include: BlackRock Global Income, Legg Mason IF ClearBridge Global Equity Income and Sarasin Global Higher Dividend (non-sterling hedged).