James, who runs the £954.1m Standard Life European Equity Income fund, says the slowdown in global growth has negatively affected equities, and warns investors not to focus on company specifics alone. This is why he is diligent in ensuring the companies he invests in can continue to weather the low-growth environment.He adds that dividends are extremely important when looking at companies because income is the driver of returns for equities over the long-term; again though he says he would not buy a company just because it pays a high dividend.
"The dividend outlook is OK, but it’s not clear cut, which is why you need to be on top of your game and properly analyse the dividend-paying ability of companies," he said.
"I’m looking medium- to long-term. One thing we don’t want to do is blow up in the difficult market conditions, which we didn’t last year."
"And that’s because we’re building this portfolio with income as a starting point and that focus of dividend sustainability through time."
"It means that when the market really rallies, we may lag a bit in the short-term."
"But if someone is investing in this fund, they need to be investing with a three-year view at the minimum because that’s where the delivery of value really comes."
James says he has seen an increase in dividend cuts over the last 12 to 18 months, making it difficult to maintain the same level of yield.
"We’ve been in the right place at the right time in some respects, given the fact that the concerns some people had about Europe 12 months ago. I wouldn’t say they’ve gone away, but I think people feel that policy makers and politicians get it and recognise there is a problem," he said.
The manager added that European Central Bank (ECB) president Mario Draghi’s assertion over the summer that he would do whatever it takes to shore up the single currency has given investors a much-needed boost in confidence.
"I don’t think that takes away from the fact that we’re in a low-growth environment," he added.
The European portfolio has five FE Crowns to its name and is a top-quartile performer over one and three years.
Over the longer period, it has made 22.04 per cent, compared with 9.63 per cent from the IMA Europe excluding UK sector.
The fund has also outperformed the FTSE World Europe excluding UK index, which has returned 7.97 per cent over three years.
Performance of fund vs sector and benchmark over 3-yrs
Source: FE Analytics
It is the fourth-highest yielding fund in the sector, with a payout of 4.77 per cent. The highest yielding, IM Argonaut European Income, currently pays 5.64 per cent.
The fund requires a minimum investment of £500 and has a total expense ratio (TER) of 1.61 per cent.