For investors reliant on income, dividend yield is a vital indicator. But Stuart Rhodes, manager of the M&G Global Dividend Fund, warns that "chasing dividend yield can be suicide for investors." Instead, he views prospective dividend growth as a better indicator of future returns.
Mr Rhodes, who has been managing the M&G Global Dividend Fund since its launch in July 2008, says selecting stocks purely on grounds of dividend yield levels can have a ruinous effect on performance, as investors who chased the high yields in the UK banking sector found to their cost in 2008 and 2009.
History shows that companies which consistently lift their dividends deliver a better return, even when the impact of dividend reinvestment is stripped out of the numbers, than shares that merely sport an eye-catching yield.
The M&G Global Dividend Fund aims to grow distributions over the long term while also maximising total return - a combination of income and growth of capital. The goal is to deliver a dividend yield above the market average, while aiming to increase annual distributions over the long term by investing in a range of global equities. The fund's exposure to global equities may be gained through the use of derivatives, and it may also invest across a wide range of geographies, sectors and market capitalisations.
The fund has delivered consistent returns since launch which sees it ranked in the top decile of performers in the IMA Global Growth sector.
The M&G Global Dividend Fund has a concentrated portfolio of around 50 stocks, and Mr Rhodes believes that the prospects for dividend growth of each company in the portfolio are not fully appreciated by the market.
M&G GLOBAL DIVIDEND A INCOME (MGGDAI) | |||
---|---|---|---|
PRICE | 123.87 | 6 MTH PERFORMANCE | 18.62% |
SIZE OF FUND | £64.91m | 1 YR PERFORMANCE | 59.89% |
No OF HOLDINGS | 50 | PERFORMANCE TO DATE | 4.94% |
SET UP DATE | 18-Jul-08 | TOTAL EXPENSE RATIO | 1.76%* |
MANAGER START DATE | 18-Jul-08 | MINIMUM INVESTMENT | £500, £10 thereafter |
YIELD | 3.11* | MORE DETAILS | mandg.co.uk |
Source: Investors Chronicle, M&G, Morningstar*
Performance figures as at 2 March 2010
Top ten holdings as at February 2010
Holding | Percentage |
---|---|
Methanex | 3.6 |
Fosters | 3.1 |
Johnson & Johnson | 3.0 |
Chubb | 3.0 |
HSBC | 2.9 |
Total | 2.9 |
Heinz | 2.9 |
Corn Products International | 2.8 |
Banco do Brasil | 2.7 |
Teck Cominco | 2.7 |
Geographical Allocation
Country | Percentage |
---|---|
US | 39.9 |
Canada | 8.4 |
Brazil | 8.0 |
Australia | 7.1 |
Switzerland | 6.6 |
UK | 6.3 |
France | 5.2 |
Hong Kong | 3.9 |
Cash | 2.2 |
Other | 12.4 |