The most recent figures show that Global Equity Income funds are becoming more popular than their UK equivalents.
The sector saw net inflows of £12.5m in January, compared with net outflows of £25m from UK Equity Income funds.
These figures do not even take into account certain Asian income funds that sit in the IMA Asia Pacific ex Japan sector and have been extremely popular over recent months.
Philippa Gee (pictured), who runs Philippa Gee Wealth Management, says it makes sense for anyone who already has UK exposure to consider buying global equity income funds."In this day and age the more diversifying you can do, the better," she said.
With this in mind, FE Trustnet looks at five funds for this ISA season that can diversify the source of investors' income.
Invesco Perpetual Global Equity Income
"If you are doing your ISA now, it might be some time since you have put money into the sector, so I would look at a global fund like Invesco Perpetual Global Equity Income," Gee said.
"It has had a change of manager but that doesn’t seem to have shaken it, and we like the new manager too."
Invesco Perpetual Global Equity Income has returned 44.48 per cent over the past three years while the IMA Global Equity Income sector has made 33.98 per cent.
Performance of fund vs sector over 3yrs
Source: FE Analytics
Managers Doug McGraw and Paul Boyne left the fund in December of last year, after the portfolio had doubled in size over a period of just two years.
The fund was then taken over by Invesco’s chief investment officer Nick Mustoe, who has more than 25 years’ experience in fund management.
In the past three months the fund has continued to do well, rising 15.42 per cent while the sector is up 13.58 per cent.
Roughly 40 per cent of the fund is in US companies, with a further 17 per cent in the UK and 9 per cent each in Japan and Switzerland.
The fund is available with a minimum initial investment of £500 and has a total expense ratio (TER) of 1.7 per cent.
It has five FE Crowns and is currently yielding just 2.7 per cent, according to data from FE Analytics.
Newton Global Higher Income
Gee also rates Newton Global Higher Income, another fund with five FE Crowns.
It utilises Newton’s thematic approach to investing, aiming to identify the best stocks in areas that are likely to see superior growth over the coming years.
The £3.5bn fund is managed by James Harries and Nick Clay. It is currently yielding 3.99 per cent, according to data from FE Analytics.
It has a higher weighting to the UK than the Invesco fund and more exposure to the emerging Asia Pacific region.
Over the past three years it has made 38.77 per cent, according to FE Analytics data, while the sector has risen by 33.98 per cent.
Performance of fund vs sector over 3yrs
Source: FE Analytics
The minimum initial investment is £1,000 and the TER is 1.62 per cent.
M&G Global Dividend
AWD Chase de Vere’s Patrick Connolly likes this £5bn fund, run by FE Alpha Manager Stuart Rhodes. It is currently yielding 2.98 per cent, according to FE Analytics.
"The fund is put forward as a total return fund rather than one looking at higher income, which is why the managers decided to remain in the Global sector rather than move to the Global Equity Income sector," Connolly said.
"They want the flexibility to buy stocks that yield less than what they need to remain in the sector."
"So it’s focused on growth as well as income, which means it tends to buy different stocks than the other Global Equity Income funds, which gives it added diversification benefits."
Despite seeking total return rather than just growth, the fund is ahead of most of the other IMA Global products.
It has made 41.35 per cent over three years, the ninth-best figure in the sector.
Performance of fund vs sector over 3yrs
Source: FE Analytics
The fund is available with a minimum initial investment of £500 and has a TER of 1.66 per cent.
Newton Asian Income
Connolly thinks this £3.4bn portfolio, managed by Jason Pidcock and Caroline Keen, offers further diversification benefits by focusing exclusively on Asia.
The fund is yielding 4.12 per cent, according to data from FE Analytics, while it is the second-best performing fund in the sector over three years on a total return basis.
The fund has made 70.15 per cent while the average fund in the IMA Asia Pacific ex Japan sector has made just 27.36 per cent.
Performance of fund vs sector over 3yrs
Source: FE Analytics
"We use it for clients who have plenty of UK Equity Income exposure," Connolly said. "It’s run thematically, like Newton’s other funds."
"The performance has been good because good-quality companies have done well. They would put it down to their stockpicking, and there’s an element of that, but it’s also the case that their style is in favour."
The fund is available with a minimum initial investment of £1,000 and has a TER of 1.66 per cent.
Vanguard FTSE UK Equity Income
Another way to diversify is by using a passive fund. This Vanguard product aims to replicate the FTSE UK Equity Income index, a list of the 130 highest-yielding stocks in the UK.
The yield of 4.65 per cent is better than most of the funds in the IMA UK Equity Income sector, and as a passive fund it is very cheap – its TER is 0.25 per cent.
The fund has returned 47.16 per cent over three years while the sector has made 36.19 per cent.
Performance of fund vs sector over 3yrs
Source: FE Analytics
Gee thinks this fund is a good choice for investors who already own an actively managed equity income fund.
"A lot of people hold Neil Woodford already so if you are looking to add to your equity income exposure you need to look elsewhere," she said.
"With this fund, you are taking away manager risk and you have low charges of just 0.25 per cent."
Retail investors have to use a platform to access the fund.