Laud, who heads up the Schroder Global Equity Income fund, admits that certain areas of the asset class – namely the US – are becoming extremely expensive, but she says she is finding plenty of opportunities in continental Europe, and to a lesser extent the UK.
As a result, the manager has made Europe ex UK the biggest overweight position in her four crown-rated global equity income portfolio, which currently has a 31.8 per cent weighting compared with its benchmark’s 17.9 per cent.
"We’re very far away from any kind of a bubble in Europe – I’m not thinking about it there at all," said Laud. "There’s no evidence of that happening at all when you see that valuations of high-yielding stocks are way below the median."
"In the US, we are a little bit more wary, because there are so few high-yielding stocks. Only 10 per cent of the market cap is currently yielding more than 4 per cent, which means they attract the bulk of the money going into the [equity income] sector."
"You don’t have this problem in Europe, where you have a champion of the sector in every country. Around 40 per cent of the market cap is yielding over 4 per cent, and you don’t have the same concentration as in the UK or US," she added.
While the European market has risen strongly over the last year – our data shows IMA Europe ex UK is the best-performing sector in the IMA universe, with returns of 36.18 per cent – Laud says this has barely made a mark on valuations, which remain at attractive levels.
Performance of sectors over 1yr
Source: FE Analytics
Among her top-10 holdings in the Schroder Global Equity Income fund are French pharma company Sanofi and Swiss pharma company Roche.
Combined with attractive prices, Laud says that the outlook for European economic performance is improving, which should support valuations.
"The data is very encouraging at the moment, especially in Europe," she said. "Growth in absolute terms is negative, but we’ve seen a stabilisation in not only countries like Germany, but those in southern Europe as well, which is very important."
"The PMI [purchasing managers index] is above 50, which implies there is expansion on the way. We’ve spoken to a lot of companies recently who also say Europe is getting better, which supports our view."
Gregory Herbert (pictured), co-manager of the newly launched Jupiter Global Equity Income fund, is of a similar opinion to Laud.
He too counts Europe as his biggest regional overweight, where he says he is finding a number of quality dividend payers at a reasonable price. "When you look at the skew between stocks that have been beaten up and those that are high in quality, there is one in Europe in that you have to pay more for the highest-quality names," he said.
"However, the skew isn’t as marked here as in other markets."
Like Laud, Herbert is backing Sanofi – a "dividend aristocrat" which he says is still relatively cheap.
The Jupiter Global Equity Income fund was only launched in April. Herbert also heads up the Jupiter European Income fund, which he started running with former FE Alpha Manager Cedric de Fonclare earlier this year.
Other funds with significant exposure to Europe ex UK in the IMA Global Equity Income sector include the likes of Lazard Global Equity Income, Martin Currie Global Equity Income and Legg Mason Global Equity Income.
For investors who would rather get direct exposure to the "cheap" European equity income market, here are a couple of funds worth considering.
Standard Life European Equity Income
This five crown-rated vehicle is the only European income fund that made it on to the FE Select 100 list, chosen by Rob Gleeson and his analyst team.
It is also the only European equity income fund that has beaten its sector average over a three-year period, with returns of 47.91 per cent.
The fund has also beaten its sector and FTSE All World Europe ex UK index benchmark since its launch in April 2009.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
The fund, which is managed by FE Alpha Manager Will James, is currently yielding 3.66 per cent.
The manager holds a concentrated portfolio of stocks and often includes some bond exposure to supplement the income of the fund and dampen volatility.
The FE Research team likes James’ strict bottom-up process of investing 50 per cent of his assets in stable high yielders, 35 per cent in undervalued companies that can grow their dividend, and the remaining 15 per cent in companies that he thinks will deliver a yield in excess of market expectations.
"James does not pay attention to the wider economy when building his portfolio," the team added.
James’ strict emphasis on dividends over capital growth means the fund tends to outperform in falling markets, but it also has a decent record in rising markets to-date.
Our data shows it lost 5 percentage points less than its benchmark in 2011, but followed this up with 3.59 percentage points of outperformance in 2012.
France, Switzerland and Sweden are James’ largest regional positions. He has little in peripheral countries – Spain is its largest weighting, at just 3 per cent.
Standard Life European Equity Income requires a minimum investment of £500 and has an ongoing charges figure (OCF) of 1.61 per cent.
Royal London European Income
Andrea Williams’ £263m Royal London European Income fund does not have a record to match its Standard Life rival, but it is a good alternative for cost-conscious investors.
It has an OCF of just 1.34 per cent, making it one of the cheapest active European funds available.
Royal London European Income invests predominantly in large caps, with major positions in multinational companies such as Unilever, Nestle and Bayer.
Since its launch in September 2008, the fund has returned 24.53 per cent, falling slightly short of its sector and benchmark.
The fund is currently yielding 3.43 per cent. It requires a minimum investment of £1,000.
