FE Alpha Manager Neil Woodford recently told investors that he expected lower returns in years to come as expensive stocks struggled to grow further.
Yesterday JPM’s Ben Stapley explained how he was having to look into less well-known sectors in order to generate the yield he requires.
Picking a Global Equity Income fund is one way to deal with this problem: they have the ability to invest in a number of markets worldwide, including those such as Europe which remain relatively cheap.
Here we look at three funds in the sector that most investors overlook: all are £100m or smaller in size and have a strong recent track record.
Legg Mason Global Equity Income
This fund is only £20.1m in size, yet has recorded top-quartile returns over one and three years, according to data from FE Analytics.
Over three years it has returned 42.8 per cent while the average IMA Global Equity Income fund has made just 35.12 per cent. The MSCI World index has made 38.66 per cent.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
The fund’s largest two country positions are in the UK, where it holds 18.39 per cent, and in the US, where it holds 13.22 per cent.
Otherwise, it is focused on Europe, with six of the next seven biggest country positions after those two located on the continent.
FE Trustnet recently reported on the trend for Global Equity Income managers to look to Europe for income.
This fund also has 4.65 per cent in China, 2.91 per cent in Japan and small holdings in Australia and Singapore.
Consumer products and financials have made up the two largest sector positions for some time, while the fund’s allocation to basic materials has grown slightly since the summer.
The fund recently took in a large sum of money which means its cash position is higher than usual, at 13.09 per cent.
It is managed by Paul Ehrlichman, Sean Bogda and Safa Muhtaseb.
The fund has ongoing charges of 1.78 per cent and requires a minimum initial investment of £3,000. It is yielding 3.6 per cent, putting it in the second quartile for the sector.
Standard Life Global Equity Income
The £102m Standard Life Global Equity Income fund has produced top-quartile returns over three, five and 10 years.
It is the top-performing fund in the sector over 10 and five years, although there were only three and then 12 funds in the sector at the start of those periods.
Over three years the fund has made 39.86 per cent while the sector has returned 35.12 per cent.
Performance of fund vs sector over 3yrs
Source: FE Analytics
Kevin Troup only took over as manager in January 2012. However, the fund is the third-best in the sector since then, with returns of 38.91 per cent, compared with 29.86 per cent from the average fund, so he is continuing in the footsteps of his predecessors.
Performance of fund vs sector since Jan 2012
Source: FE Analytics
The portfolio is much more biased towards the US than the Legg Mason portfolio: it has 39.6 per cent in the country. It holds 17.8 per cent in the UK and 10.1 per cent in Japan.
Its yield is rather disappointing, however, at just 2.28 per cent.
The fund requires a minimum initial investment of £500 and has ongoing charges of 1.07 per cent.
Saracen Global Income & Growth
This is a very young fund, so the jury is out to some extent, although it has had a strong start to its life.
Our data shows that the £28.5m portfolio, managed by Graham Campbell and Daniel Leaf, has managed to achieve returns of 38.41 per cent since it was launched in June 2011, the second-best result of the 25 funds in the sector.
Performance of fund vs sector since launch
Source: FE Analytics
It produced the seventh-best returns of the 25 funds in the sector last year and is currently the seventh-best performing out of the 31 funds in the sector in 2013.
However, it is currently yielding just 2.8 per cent, which may not be enough for some income-seekers.
The fund has 32 per cent in Europe, 30 per cent in North America and just 5 per cent in the UK – this latter low rating may make it suitable for anyone diversifying their UK Equity Income holdings.
It is fairly spread in terms of sector, with 10 to 15 per cent each in consumer services, industrials, healthcare and consumer goods. It also has just under 10 per cent in financials and telecommunication stocks.
The fund requires a minimum initial investment of £1,000 and has ongoing charges of 1.41 per cent.