Global, Income and Caution: three top themes this ISA season
It’s the new tax year. Not quite as exciting as a new calendar year, but a good time a make...
2017 was a bumper year for global dividends, following a strengthening world economy and rising corporate confidence.
In fact, the latest Janus Henderson Global Dividend Index report* found that global dividends rose to record highs last year, due to the strengthening global economy and rising corporate confidence. Not only this, 11 out of the index’s 41 countries broke their historic dividend record – this included the likes of the US, Japan, Hong Kong, Taiwan and the Netherlands.
For investors who think this trend is set to continue and who want to reap the benefits, we decided to shine the spotlight on five income-focused equity funds from around the world which we believe could reward investors handsomely over the long term.
Starting off in the home market, Adrian Frost and Nick Shenton’s Artemis Income fund looks to hold undervalued companies which are able to generate a significant supply of surplus cash.
While the £6.1bn fund has an income mandate, the managers will focus more on the company’s ability to use this surplus wisely – whether it’s returned to shareholders via dividend pay-outs or whether it is reinvested back into the business.
Each stock is chosen individually with no reference whatsoever to a benchmark – the only constraint is that each stock cannot account for more than 5% of the overall portfolio. As such, the fund tends to consist of between 60 and 80 holdings at any one point.
Artemis Income has a historic yield of 3.81% and, had an investor placed £10,000 into the fund five years ago, they would have received £2,267.94 in income alone**.
For a fund which invests in European stocks excluding the UK, BlackRock Continental European Income may present itself as a good option. The £1.9bn fund aims to provide an attractive income, but does not simply search for the highest-yielding stocks possible.
Instead, managers Alice Gaskell and Andreas Zollinger look for undervalued stocks which offer dividend growth and sustainability, as well as protection against inflation. Examples of its largest holdings include Allianz, Zurich Insurance Group and Telefonica; these are currently part of a 41-stock portfolio.
Based on a £10,000 investment five years ago, BlackRock Continental European Income would have earned investors £2,556.55 in income alone**. It has a historic yield of 3.95%.
Over in the IA Asia Pacific (excluding Japan) sector, Jason Pidcock’s £580m Jupiter Asian Income fund has a concentrated portfolio of 33 stocks, which the manager chooses by focusing primarily on company fundamentals but also taking a macro overlay into consideration.
While the portfolio is indeed very concentrated, it is also more defensive than many of its peers in the sector because it has a significant weighting to developed markets – most notably Australia.
Another differentiator from its peers is that Jason can adopt a barbell approach – he can hold some high-yielding stocks alongside others which don’t pay an income at all so that the overall fund can provide both capital growth and income.
Jupiter Asian Income, which yields 4%, would have paid investors £889.53 in income alone since its launch in March 2016**.
For investors looking to further increase their Asian exposure, Magna Emerging Markets Dividend might dovetail nicely with Jupiter Asian Income, given that the latter has a marked focus on developed Asia.
Magna Emerging Markets Dividend, which is headed up by Mark Bickford-Smith, typically has a portfolio of between 45 and 55 holdings; these are chosen with an emphasis on quality and risk-adjusted returns.
As such, the manager will hold stocks over long-term time frames. Examples of its largest individual holdings include the likes of mortgage lender Indiabulls Housing Finance, Taiwanese holding company Chailease and China Construction Bank.
The £348m fund would have earned investors £1818.12 in income alone since its launch in 2013, based on an initial £10,000 investment**. Magna Emerging Markets Dividend has a historic yield of 3.6%.
Finally, for investors looking for a regionally-diversified fund, Guinness Global Equity Income could present itself as a good option.
The £351m fund is headed up by Dr. Ian Mortimer and Matthew Page. Unlike many of its peers, its highly-concentrated portfolio consists of 35 equally-weighted positions in order to minimise stock-specific risk. Ian and Matthew also ensure that no more than 30% of the fund is invested in any one sector.
Generally speaking, though, the managers adopt a bottom-up approach to stock selection. They look for companies which are able to sustainably grow their dividends and, as with BlackRock Continental European Income, the fund focuses on quality rather than yield.
Had an investor placed an initial £10,000 into the fund five years ago, they would have received £1,834.09 in income alone**.
*Source: Janus Henderson. https://www.janushenderson.com/nopi/campaign/6/janus-henderson-global-dividend-index-august-2017
** Source: FE Analytics. Income only in sterling terms. Correct as of 22 February 2018.