Artemis Global Income reaps benefits of diversity

IC TIP RATING

Tip style: INCOME

Risk rating: HIGH

Timescale: LONG TERM

We have already included some global equity income funds in our IC Top 100 Funds such as M&G Global Dividend (GB00B39R2M86) and Newton Global Higher Income (GB00B0MY6T00).

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Read our tip update on Newton Global Higher Income

But another fund steadily building up an outstanding record is Artemis Global Income (GB00B5VLFH80). It is among the top three performers in the Investment Management Association (IMA) Global Equity Income sector over one and three years, and has also beaten its benchmark, MSCI AC World NR GBP, over those periods. And it offers an attractive yield of 4.48 per cent.

The fund is also better diversified than some global equity income funds. "Unlike its US-biased peers, Artemis Global Income uses its full global remit to exploit income opportunities," say analysts at FundExpert. "The fund was one of the few global equity income funds to grow its payout in 2013 (up 8 per cent). Its unhedged currency exposure will also provide a currency kick should sterling weaken, as it may do as markets focus on the UK's debt pile in the years ahead.

"When choosing a global equity income fund, investors need to focus on those funds which have a track record of prioritising payouts and growing those payouts, or funds doing something different where there is a high likelihood that earnings growth in the underlying businesses will trigger payout growth. Such equity income funds include Artemis Global Income."

The fund has exposure to the growth prospects of around 28 countries and 16 different currencies. It has a relatively low exposure to the UK making it a good complement to UK equity income funds, or it could be added to further diversify existing global equity income exposure.

Artemis Global Income's manager Jacob de Tusch-Lec looks for companies that can grow and sustain their dividends over time, aiming for a good, steady and rising income, as well as prospects for capital gain, from 'best of breed' companies. He believes the value of equity is the present value of its future cash flows - what a company will give back to investors over time. So he aims to buy the best value, sustainable free cash flow he can find. For the majority of companies, cash flow is reflected in dividend policy and he invests in companies where dividend and dividend progression (dividends increasing in line with earnings) are important drivers of valuation.

The fund is overweight Europe, and underweight the US and emerging markets. "We are reasonably optimistic about the outlook for the global economy but acknowledge that equities as an asset class are no longer cheap and that markets have run ahead of corporate earnings," says Mr de Tusch-Lec. "We therefore continue to de-risk the portfolio by adding to holdings in what we regard as safer companies and by maintaining a clear value tilt."

The fund is relatively new as it was only launched in July 2010, so whether it can continue to do well over longer periods remains to be seen. But it has an experienced manager and a proven investment approach, so for investors looking to diversify and benefit from rising steady income without sacrificing capital growth, Artemis Global Income looks like a good addition. Buy.

Source: Morningstar, *Artemis.

Source: Morningstar as at 15 April 2014

Top 10 holdings as at 28 February 2014

Geographic breakdown