Fidelity Global Dividend, Newton Global Income and Schroder Global Equity Income are among some of the funds in the IA Global Equity Income sector to have achieved strong total returns while paying out attractive dividends, according to data from FE Analytics.
The findings come as the second half of a series, which looks at equity income funds that achieve a strong balance of both total returns and income pay-outs. This is arguably now more important than ever for some investors, given today’s low-yield and politically uncertain environment.
The previous article unearthed a total of nine funds in the IA UK Equity Income sector which outperformed the FTSE All Share index over one, three and five years while paying an income of at least £2,000 on a £10,000 investment over the last half-decade.
This was a far more difficult task when it came to finding the global equity income funds that have outperformed over these timeframes while paying out the same minimum level of income.
It is common knowledge that global equity funds tend to struggle to beat their benchmarks. While the reasoning for this isn’t entirely clear, investment professionals have suggested this could be the result of the MSCI AC World index’s large weighting towards high-growth and expensive US stocks.
Performance of index vs sector since start of data
Source: FE Analytics
Others have suggested that the investable universe is so large, there is a greater chance of missing out on potential upside from stocks that are inherently part of the index.
As such, only one fund within the IA Global Equity Income sector has managed to outperform the MSCI AC World over one, three and five years while paying out at least £2,000 on a £10,000 investment over the last five.
Schroder Global Equity Income, which is headed up by Ian Kelly, has comfortably outperformed the index over these timeframes and would have paid out £2,073.32 in income over five years.
Over the manager’s tenure, the £182m fund has outperformed the MSCI AC World by 191 basis points with a total return of 56.61 per cent, although it has underperformed its MSCI World benchmark by 73 basis points.
This is no mean feat, however, given that its average peer has returned just 39.99 per cent over the same time frame.
Kelly aims to provide both income and growth through a concentrated portfolio which currently stands at 49 stocks. These are chosen for their ability to offer sustainable dividend payments and should offer a dividend yield which, in aggregate, is greater than the average market yield.
However, the manager is able to hold stocks with a below-average yield if he believes their dividends are set to exceed the market average in the future. The overall portfolio currently yields 2.77 per cent.
It is significantly underweight the US relative to its benchmark with a 41.2 per cent regional weighting. However, it has notable overweights to the UK and emerging markets with respective 15.9 and 13.7 per cent weightings.
While it may have been the only fund to outperform the MSCI AC World over one, three and five years, it is one of three funds to have outperformed over the latter two time frames.
While Fidelity Global Dividend has underperformed the index by 8.55 percentage points over the last 12 months with a return of 23.18 per cent, it is in the top three out of all 46 funds in the sector for its returns over three and five years.
Performance of fund vs sector over 5yrs
Source: FE Analytics
Not only this, it would have paid investors £2,125.68 in income alone based on an initial £10,000 investment over five years.
The four crown-rated fund is £826m in size and currently has a portfolio of 56 stocks. These are chosen by manager Daniel Roberts on a bottom-up basis, which focuses on stocks that offer a healthy yield underpinned by a growing level of income as well as capital growth potential.
The manager also focuses on dividend sustainability, whether the share price offers a large-enough margin of safety and whether they offer predictable, consistent cash-flows. He also ensures there is overall portfolio diversification in terms of sector and geography.
Given its focus on valuation, investors will be unsurprised to learn it is significantly underweight the US on a regional basis with a 37 per cent allocation. Its largest individual underweights relative to the MSCI AC World benchmark are Apple, Alphabet, Amazon.com, ExxonMobil and Facebook. The fund currently yields 2.83 per cent.
The third fund to have outperformed the index over three and five years while paying out more than £2,000 on a £10,000 investment over five years is Newton Global Income, which is one of only five funds in the sector to have a decade-long track record.
While the four crown-rated fund was launched in 2005, it should be noted that current manager Nick Clay took became lead manager at the end of 2015. That said, he had been the alternate manager of the fund before James Harries left and has 15 years’ experience working at Newton.
Over five years, the £5.8bn fund has outperformed the MSCI AC World index by 122 basis points with a total return of 102.1 per cent although, as with Schroder Global Equity Income, it has underperformed its actual FTSE World benchmark over this time frame.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
Had an investor placed an initial £10,000 into the fund and held it over this timeframe, they would have received £2,398.52 in income alone.
Those familiar with Newton’s underlying investment philosophy will know that the fund adopts a thematic approach to stock selection which focuses on long-term structural changes and how this will affect certain market areas.
Each stock in Clay’s fund had a yield that is at least 25 per cent greater than its benchmark at point of purchase. He aims to identify companies that are high-quality and cash generative, and which also boast a competitive advantage over their peers.
The fund tends to consist of between 40 and 70 stocks at any one time. Just under half of the current portfolio’s regional allocation is to the US, followed by continental Europe at 24.1 per cent and the UK at 20.7 per cent. Newton Global Income currently yields 3.02 per cent.
A further three funds in the IA Global Equity Income sector have managed to outperform the MSCI AC World index over five years and have paid at least £2,000 in income on a £10,000 investment, despite falling short of the mark for their one- and three-year total returns.
The closest, which has also achieved the highest five-year total return out of all funds on the list, is Jacob de Tusch-Lec’s £3.6bn Artemis Global Income fund.
Over five years, it has outperformed its average peer and its MSCI AC World benchmark by 45.99 and 26.85 percentage points respectively with a total return of 127.73 per cent. Over the same timeframe it would have paid out £2,747.68 in income alone based on a £10,000 investment, which is significantly more than any other fund on the list.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
De Tusch-Lec combines top-down and bottom-up stock selection when structuring his portfolio, although he focuses on finding reliable companies with a quality bias which he then dovetails with some businesses with more cyclical characteristics. He is also able to invest across the cap spectrum, although he tends to focus on mid- and large-caps.
Unusually for a fund in the sector, its largest regional weighting is to continental Europe at 43.5 per cent followed by the US at 32 per cent. It also has smaller weightings in emerging markets, the UK and Japan. Artemis Global Income yields 2.97 per cent.
As shown in the below table, other funds that deserve an honourable mention are Invesco Perpetual Global Equity Income and Legg Mason IF ClearBridge Global Equity Income. TB Saracen Global Income & Growth fell just short of the mark as, despite outperforming the index over five years, would have provided £1,607.24 in income on a £10,000 investment.