Asian and emerging market equity strategies, as well as funds focusing on property and riskier parts of the bond market, have been the best hunting grounds for income payouts in recent years, FE data shows.
In a recent article, we looked at the funds that generated the highest income for the investors in 2018 and found that Templeton Emerging Markets Bond, L&G Dynamic Bond and UBS Global Enhanced Equity Income were at the top of the pile.
Here, we have extended the period to review the entire Investment Association universe over the past five years, looking at the dividends paid out on an investment of £10,000 made at the start of 2014.
Price performance and total return of fund over 5yrs
Source: FE Analytics
Richard Sennitt’s £373.5m Schroder Asian Income Maximiser fund has taken first place in this research after distributing £4,723.05 over the five years to the end of 2018. Over this period, its total return was just under 50 per cent, which puts it in the second quartile of the IA Asia Pacific Excluding Japan sector.
The four FE Crown-rated fund aims to deliver a target income of 7 per cent a year. Income is generated from two sources: dividends received from shares in Asian companies and income from covered calls – which essentially sell potential capital growth for income. This approach means that its capital growth was just 2.95 per cent over the five years in question.
In a recent update, Sennitt noted that Asian equities face several headwinds – including the tightening of monetary policy, slowing Chinese growth and trade disputes. However, he also pointed out that dividend investing “remains relevant” given its focus on quality businesses with sound capital structures and strong cash flow generation.
“With regard to the option strategy, we continue to apply this on a stock-by-stock basis, applying caution in our decision-making process if we feel there may be sufficient probability of a share price spike within the option’s term,” he said.
“For that reason, we continue to apply notional decisions to names such as HSBC, Standard Chartered, China Construction Bank and Industrial & Commercial Bank of China, which have seen a share price setback recently.
“We also continue to have names within the portfolio on which there are no options at all – including Midea, Hangzhou Hikvision and BHP Group. In total, approximately 65 per cent of the fund is overwritten at present, with approximately 35 per cent left without options and therefore unconstrained in terms of potential upside.”
Schroder Asian Income Maximiser highlights two trends that can be seen in the list of the funds that have paid out the most income over the past five years: Asian or emerging market exposure and the use of covered calls by ‘enhanced income’ strategies.
Source: FE Analytics
Janus Henderson Asian Dividend Income, Templeton Emerging Markets Bond, JPM Emerging Markets Debt and Merian Emerging Market Debt are all examples of income-payers looking at Asian or emerging market assets.
Meanwhile, the likes of Insight Equity Income Booster, Schroder Income Maximiser, Schroder ISF Global Dividend Maximiser, Premier Optimum Income and Fidelity Enhanced Income add to their distributions by sacrificing capital growth with options.
Another theme that can be seen on the above table is property, with Mayfair Capital Property Income Trust for Charities, MGTS St Johns High Income Property, Schroder Global Cities Real Estate Income and TIME Investments Freehold Income making high payouts in recent years.
Looking just at the UK equity peer groups and the list also is topped by enhanced income funds, as would be expected. The highest-ranked strategy that doesn’t take this approach is Majedie UK Income, which has paid out £2,870.70 on a £10,000 investment made five years ago.
The £717m fund, which is managed by Mark Wharrier and Yuri Khodjamirian, looks for companies with improving free cash flow as this drives both equity value over time and long-term sustainable dividend growth.
Man GLG UK Income is the next highest ranked UK fund with a conventional approach, while MI Chelverton UK Equity Income, Liontrust Macro Equity Income, Franklin UK Equity Income, FP Miton Income, Marlborough Multi Cap Income and LF Miton UK Multi Cap Income all paid out more than £2,600 on the initial £10,000.
Source: FE Analytics
Repeating this exercise with the Investment Association’s multi-asset sectors puts Schroder Mixed Distribution in the top place. This £107.3m fund has handed £3,212.34 to its investors in income over the five years examined by this research.
The multi-asset funds with the next strongest distributions on £10,000 are TB Wise Multi-Asset Income (£2,864.42), LF Seneca Diversified Income (£2,592.51), BlackRock Global Multi Asset Income (£2,530.65) and Premier Multi-Asset Monthly Income (£2,468.30).
BMO MM Navigator Distribution, Premier Multi-Asset Distribution, Invesco Distribution, MI Hawksmoor Distribution and Fidelity Moneybuilder Balanced can also be found among the top 25 funds.