Often investors need to sacrifice capital growth to maintain a decent yield, but there are a number of equity income funds that have also impressed from this point of view.
Over almost every time period, it has been the funds that have managed to generate high levels of capital growth that top the total return performance tables – which take into consideration both dividends generated and capital growth achieved.
Last week we looked at the UK Equity Income funds that have a proven record of delivering strong levels of capital growth in recent years; here, we look at the standout performers in the IMA Global sectors.
Unlike their UK rivals, few global equity income managers concentrate on small and mid cap companies when putting together their portfolios.
Global equity income as a concept is relatively new and many of the regions that these funds invest in – namely emerging markets and the US – lack a long and established dividend track record like in the UK.
There is no global equivalent to the Unicorn UK Income or PFS Chelverton UK Equity Income funds, for example, meaning that for now, investors have to stick with large cap-focused global equity income portfolios.
In spite of this, some of the funds in question have managed to deliver stellar capital growth in recent years.
FE Alpha Manager Stuart Rhodes’ M&G Global Dividend fund is the standout example; our data shows that the £8.1bn portfolio has returned 76.68 per cent of capital growth over a five-year period, putting it well ahead of the IMA Global Equity Income sector and and the MSCI AC World index.
It is also ahead of the IMA Global sector over this period, even though the vast majority of funds in the sector focus on capital growth alone.
Capital growth returns of fund, sector and index over 5yrs
Source: FE Analytics
Rhodes has historically had significant exposure to mid caps, but given the meteoric growth of the fund in terms of assets, it is hardly surprising that this content has shrunk in recent years.
Still, investors will be pleased to hear that the fund has managed to deliver more capital growth than its benchmark over one and three years as well, though slightly less than the two sectors.
M&G Global Dividend actually sits in the IMA Global sector, as the manager does not want to be constrained by the yield target set out in IMA Global Equity Income.
Rhodes puts more of an emphasis on dividend growth, though his yield has remained competitive compared with its direct rivals. At present, the fund is yielding just over 3 per cent.
The FE Research team likes this approach to running an equity income fund, and points out it has helped it from a total return point of view.
“The dividend yield is not the primary concern for stock selection and this is reflected in the fund’s price appreciation, which is stronger than that of its benchmark and sector,” they said in a note to investors.
“High yields can also mean that a company is sacrificing its own growth to pay shareholders; this is not what Rhodes wants as he is a long-term investor and prioritises capital appreciation.”
The figures from the IMA Global Equity Income sector are less encouraging, however, with none managing to keep up with their pure growth-focused rivals or even the MSCI AC World index from a capital growth perspective over a five-year period. Their sector guidelines, it seems, have restricted their ability to generate capital growth.
This is a far cry from the IMA UK Equity Income sector, which boasts a number of funds that have beaten many of their pure growth-focused rivals at their own game.
Source: FE Analytics
The Legg Mason Global Equity Income fund is the best of the bunch, generating just over 50 per cent of capital growth over a five-year period.
Threadneedle Global Equity Income, Veritas Global Equity Income, Newton Global Higher Income and Liontrust Global Income make up the top-five.
Two of the Global Equity Income funds without a five-year track record are the only ones that have managed to beat the MSCI AC World index and IMA Global sector over a three-year period.
Artemis Global Income and Invesco Perpetual Global Equity Income have delivered capital growth of 31.1 and 35.91 per cent respectively, putting them well ahead of both performance measures.
Capital growth returns of funds, sector and index over 3yrs
Source: FE Analytics
The £410m Artemis Global Income fund, which is run by Jacob de Tusch-Lec, has a significant overweight in Europe at the moment, which has helped it to outperform in recent months. Subsiding concerns about a break-up in the eurozone have seen company share prices rebound strongly in the last 18 months or so, with the DJ Eurostoxx index up over 45 per cent over the period.
It is the same story with the Invesco Perpetual Global Equity Income fund, which counts Europe as its biggest regional position, at 34 per cent.
