The attractions of investing in global equity income funds

These are confusing times for global equity investors with both positive – and negative – views being expressed about the coming months.

One narrative is that the world is primed for the start of the next bull market, according to Lewis Grant, senior portfolio manager for global equities at Federated Hermes Limited. “The VIX (a volatility index) is near pre-pandemic levels and mega-cap growth names are expected to benefit from era defining technology and easing monetary conditions,” he said.

However, he also warned it’s a bit premature to get out the streamers and party balloons because there is also a very compelling – and, sadly, more realistic – contrasting view. “The central bank timeline does not support the bull’s thesis, and the higher [interest] rates continue to leave economies teetering on the brink of recession,” he explained.

Confusion reigns

It’s certainly a confusing outlook as no-one knows for sure what’s going to happen to global inflation and interest rates over the coming months. Daniel Grosvenor, director of equity strategy at Oxford Economics, is currently underweight stance global equities.

“Our base case remains that the US economy will enter recession in the second half of 2023, and that the EPS [earnings per share] downgrade cycle will continue as profit margins contract,” he said. “We think equities will struggle to make further headway in this environment.” Broadly, he believes valuations look stretched among US tech names, maintains a “relative preference” for Japan, and is selective when it comes to emerging markets.

Diversified approach

That’s why a diversified approach to investing in global equities can be sensible. Having exposure to a broad number of countries and sectors will lessen the risk taken. If you can achieve an income from your investment at the same time, then total returns could get a significant boost.

This explains enthusiasm for the IA Global Equity Income sector. This is for funds investing at least 80% of their assets globally in equities. They must also be geographically diversified and intend to achieve a yield greater than that of the MSCI World index.

It currently has £22.7bn of assets under management, according to IA data for April 2023*. This is £4.4bn more than the £18.3m level a year ago**. Many of the funds in this area invest in large, reliable businesses that pay decent – and growing – dividends to their investors.

So, what fund in this area should you choose? We have picked five such portfolios that could be worth considering.

TB Evenlode Global Income

The first suggestion on our list is the TB Evenlode Global Equity Income fund, which was launched back in November 2017. The portfolio invests in market leading business across a wide variety of sectors, including information technology, healthcare, and consumer goods. The fund’s co-managers, Ben Peters and Chris Elliott, believe the market underestimates the value of high quality businesses because of its obsession with short term events.  We like the fact they aren’t afraid to be radically different to their benchmark, as well as the objective of growing the dividend in the future.

Trojan Global Income

Next up is Trojan Global Income. This fund aims to provide investors with an attractive and regular stream of income that it intends to grow. Its managers, James Harries and Tomasz Boniek, are focused on investing in high quality, resilient businesses for the longer-term. James is a very respected figure in this industry. He boasts 25 years’ experience and has managed global portfolios since 2002. This fund has historically done well at preserving capital in difficult markets.

M&G Global Dividend

There’s also the M&G Global Dividend fund. Manager Stuart Rhodes embraces the idea of a concentrated portfolio of 40 to 50 companies. Although this fund doesn’t typically provide the highest yield, it offers investors a rising income stream and the prospect of excellent total returns. The portfolio is constructed in such a manner as to cope with all market conditions, picking stocks from three ‘sources’ of dividends. These are quality (meaning disciplined companies with reliable growth); assets (asset-back cyclical companies); and rapid growth (structural growth driven by geography or product line).

TM Redwheel Global Equity Income

While TM Redwheel Global Equity Income will be broadly diversified across sectors, it reserves the right to be materially underweight – or to shun completely – areas it regards as unattractive. Fund manager Nick Clay and his team focus on a number of key factors:  finding sustainable business models, at good valuations, and trading them with a strong buy/sell discipline. An added note of interest is that Redwheel is a specialist, independent investment organisation that is employee owned. It was established back in 2000.

Guinness Global Equity Income

The final name on our list is the Guinness Global Equity Income fund, which has been co-managed since launch by Matthew Page and Dr Ian Mortimer. The managers focus on how well – and consistently – a company uses its money to generate returns. They also have the freedom to exclude countries and sectors they don’t like. They look for growing – rather than high – income, while the equally-weighted portfolio also sets the fund apart from many of its peers.

*Source: Investment Association, April 2023

**Source: Investment Association, April 2022

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