Europe: three reasons for optimism, three for caution and three funds
Last week marked five years since Mario Draghi, president of the European Central Bank (ECB),...
When it comes to earning an income from your investments, diversification really is the name of the game. Although the UK stock market has always been a favourite among yield seekers, many investors are concerned over the short- to medium-term economic outlook as Brexit negotiations begin and ongoing uncertainty starts to impact profitability.
Investors with a longer-term timeframe may well be able to wait out the potential volatility. But for those needing to draw a regular income payment now, diversifying your sources beyond domestic borders could prove very wise. We take a quick look at our top-yielding Elite Fund in each of these four major regions*.
The current top-yielding Elite UK equity fund is Fidelity Enhanced Income with an annual income of 6.28%*. It managers stated aim is to earn a much higher income than most other UK equity income funds and they achieve this. Their strategy involves trading some potential capital growth in return for this additional income, and so the fund is definitely one for the investor whose priority is to draw regular payments. However, we like that it offers something different, despite the fact it invests in predominantly large, dividend-paying UK companies.
Europe is on track to take out the high achiever award among developed markets this year, with its stock market so far beating UK, US and Japanese equities, in sterling terms, in the year-to-date^. BlackRock Continental European Income has been well-positioned to profit, with its focus on undervalued stocks that tend to do well in a strong growth environment. Its yield is currently 3.94% and it has made a total return so far this year of 16.8%*.
North America is a market better known for its growth stars and companies with high price to earnings ratios that focus on re-investing for even more earnings (and subsequently share price) growth, not necessarily returning surplus money to shareholders. That said, it does offer some opportunities to diversify your income stream and one fund we like is JPM US Equity Income, whose current annual income is 2.03%*.
Although not an area traditionally associated with dividend payers, Asia Pacific in fact has many of the world’s fastest-expanding companies and, as these businesses mature, many start to pay a steady income stream. What’s more, they offer the potential for growing dividends as they tap into the region’s desirable demographics. Asia Pacific funds often incorporate Australia into their remit too, which can help them to provide a reliable cornerstone of established dividend payers, alongside their future earners. Our top-yielding Asian equity income Elite Fund is Schroder Asian Income, which currently has an annual distribution of 3.82%*. Its manager, Richard Sennit, emphasises company visits as a crucial part of his process, which means he grills businesses into which he invests about their intention and ability to deliver sustainable, rising income to their shareholders.
*Elite Rated funds analysed within IA UK Equity Income, IA Europe Excluding UK, IA North America and IA Asia Pacific Excluding Japan sectors. Yield refers to annual income (historic), correct as at 31/07/2017. Data source FE Analytics. Please note other funds within these sectors, which are not Elite Rated, may have higher yields.
^FE Analytics, Euro STOXX, FTSE All Share, S&P 500, TOPIX. TR in GBP, 30/12/2017–10/08/2017