Fidelity Global Dividend, Invesco Perpetual Global Equity Income and Baillie Gifford Global Income Growth are some of the IA Global Equity Income funds that have outperformed their peers across a spread of risk and return metrics.
The peer group is much smaller than the growth-focused IA Global sector as it has collective assets under management of just £16.5bn compared with £101.2bn, but it is home to a number of funds that are popular with income investors looking to diversify away from the UK. With this in mind, we have examined its members in this ongoing series of research.
To recap, in this series we review funds for their five-year returns up to the end of 2017, the annual returns of 2017, 2016 and 2015, annualised volatility, alpha generation, Sharpe ratio, maximum drawdown and upside and downside capture relative to the sector average.
We then looked at the funds’ decile ranking for each of these 10 rankings and worked out the average to reveal which funds have most consistently been at the very top of the IA Global Equity Income sector for a wide range of return and risk measures.
Performance of fund vs sector and index over 5yrs to the end of 2017
Source: FE Analytics
Fidelity Global Dividend is the fund that comes out on top in this research after achieving an average decile ranking of 3. The £848m fund is in the peer group’s top decile for its 100.76 per cent five-year return (illustrated above), performance in 2015, alpha, maximum drawdown, Sharpe ratio and downside capture.
Managed by Daniel Roberts, the fund takes a long-term approach to valuations and focuses on companies’ cash conversion over a three-year time horizon. Furthermore, the manager does not have a strict yield criteria for his holdings as he believes each should contribute meaningfully to the fund’s overall dividend growth.
The FE Invest team, which includes Fidelity Global Dividend on its Approved List, said: “Manager Roberts’ approach to equity income investment is not revolutionary and does not differ too much from other equity income managers. Nevertheless, he has been more successful in implementing it as he may be more patient than his peers.”
According to its latest factsheet, the fund is currently overweight Europe and the UK while running a large underweight to the US. Top holdings include Wolters Kluwer, Diageo, Royal Dutch Shell, Us Bancorp and Deutsche Boerse.
As the table below shows, Nick Mustoe’s £915.9m Invesco Perpetual Global Equity Income fund comes in second place after scoring 3.1 in this research. The fund is in the first decile for Sharpe ratio but posted second-decile numbers for performance over five years, 2017 returns, alpha generation, volatility and downside capture.
Mustoe is the chief investment officer of Invesco Perpetual and the approach used on the fund draws in the expertise of the firm’s regional equity managers: Simon Clinch oversees US equities, Stephanie Butcher is a Europe ex-UK regional specialist, Mark Barnett works on the UK, Tim Dickson on Asia and Tony Roberts on Japan.
The process is unconstrained and valuation-led, while the teams is looking for quality income with the prospect of dividend growth. At the moment, the portfolio’s largest stocks include JP Morgan Chase, Royal Dutch Shell, Orange, Statoil and Chevron.
Source: FE Analytics
The fund in third place is much smaller than the previous two. The £75.9m The TM Overstone UCITS Equity Income fund has a 3.4 score thanks to alpha generation, Sharpe ratio and downside capture being in the top decile.
It aims to generate a “significant level of income which will rise over time”, aiming for a yield of at least 130 per cent of that available from the MSCI World index. Managers Richard Garstang and Samuel Ziff play close attention to valuations, are “suspicious of short-termism” and invest without reference to the benchmark.
In fourth place is another larger fund – the £524.2m Baillie Gifford Global Income Growth fund, which is managed by James Dow and Toby Ross. This portfolio is second-decile for 2016 total returns, annualised volatility and maximum drawdown.
Only three funds in the IA Global Equity Income sector have assets under management of more than £1bn. The largest – the £5.3bn Newton Global Income fund – is the sixth best performer in this research with an average decile score or 3.8; it’s first decile for returns in 2015 and maximum drawdown.
Artemis Global Income, the second-largest fund with £4bn under management, is in eighth place after scoring 4 while the £1.7bn Threadneedle Global Equity Income fund comes in 22nd out of 33 funds with a 5.8 per cent average decile ranking.
Performance of fund vs sector and index over 5yrs to the end of 2017
Source: FE Analytics
Lazard Global Equity Income has taken last place in this study, with an average decile ranking of 8.6. It has turned in bottom decile numbers for five-year returns, performance in 2015, alpha, maximum drawdown, Sharpe ratio and downside capture.
Other IA Global Equity Income funds at the bottom of the table here include Neptune Global Income (which has a 5.5 average decile ranking), Veritas Global Equity Income (8.4) and Liontrust Global Income (8.4).