Porter will oversee the provider's Global Equity Income fund launching on 1 November. The OEIC is not new per se as it entails a refocusing of the existing UK Equity Income fund with a new mandate, subject to unit holder approval.
The global income fund will be run according to the model portfolio Porter trialled for more than three months. The objective is to beat the benchmark MSCI World index yield, currently at around 3 per cent. The model portfolio is yielding 4.8 per cent.
The unconstrained global equity income approach gives access to a much broader range of investment ideas than available in the UK, Porter said, with hundreds of stocks in his investible universe already yielding more than the average of the benchmark. And, they are not necessarily ones that will be more risky than equivalent investment opportunities in the UK. Porter expects that the chief risk UK investors will be wary of is currency.
"UK investors have to be relaxed about currency risk," he added. Arguably this is true of any overseas exposure, and the growth in global equity income assets under management, and the number of such funds, is expected to proliferate – key reasons why the IMA is considering introducing a Global Equity Income sector.
UK investors may historically have baulked at the thought of holding more overseas income generating assets, but it is also the case that much of the FTSE 100 income is already coming from overseas, Porter said. Financial Express data shows that there has been a spread of equities performances globally in the past three years.
Performance of indices over 3-yrs
Source: Financial Express Analytics
Over 10 years the performances are markedly more spread, with the opportunities from emerging markets clearly accelerating away from developed markets overall.
Performance of indices over 10-yrs
Source: Financial Express Analytics
Coupled with Porter's view that investment is not simply a choice between growth or income – that the evidence suggests companies whose dividend payouts rise faster are also those that grow faster – then these performance differentials between markets suggest that a global approach to income investing is indeed going to become more attractive to those seeking income.
Martin Currie's new fund as proposed is not bound to particular capitalisation or geography. There are now many markets yielding more than the UK, although the buy and sell discipline is not slave to yield figures alone. For example, the model portfolio currently only holds one stock from the so-called PIGS – Portugal, Italy, Greece and Spain - because there are other factors to consider about the prospects of companies in those markets.
Holdings will be sold if their yields slip below 75 per cent of the benchmark average yield. This avoids the risk of creating tails of part-sold holdings, and a portfolio with a large number of stocks. Porter aims to limit the portfolio to between 40-60 stocks, and then mostly focused on large cap companies, because that is where he feels his past experience is greatest.
The fund will look for stocks across six different categories: fast, medium and slow, consisting respectively of companies with more than 7 per cent forecast dividend growth over three years, three to seven per cent, and less than three per cent.
Cyclical investments looking for volatile dividends, asset plays looking for hidden assets, and turnaround stocks round out the categories. Against the benchmark MSCI World index Porter's model portfolio is overweight stocks in the medium dividend growth category, but underweight cyclicals – seen as fully valued – and underweight slow dividend growth companies, which could be seen as more defensive, as he does not expect a global double dip recession.