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M&G Global Dividend won't chase yield

FUND PROFILE: M&G Global Dividend seeks out a combination of income and capital growth.
March 2, 2010

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.

123.87p

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)
PRICE123.876 MTH  PERFORMANCE18.62%
SIZE OF FUND£64.91m1 YR PERFORMANCE59.89%
No OF HOLDINGS50PERFORMANCE TO DATE4.94%
SET UP DATE18-Jul-08TOTAL EXPENSE RATIO1.76%*
MANAGER START DATE18-Jul-08MINIMUM INVESTMENT£500, £10 thereafter
YIELD3.11*MORE DETAILSmandg.co.uk

Source: Investors Chronicle, M&G, Morningstar*

Performance figures as at 2 March 2010

Top ten holdings as at February 2010

HoldingPercentage
Methanex3.6
Fosters3.1
Johnson & Johnson3.0
Chubb3.0
HSBC2.9
Total2.9
Heinz2.9
Corn Products International2.8
Banco do Brasil2.7
Teck Cominco2.7

Geographical Allocation

CountryPercentage
US39.9
Canada8.4
Brazil8.0
Australia7.1
Switzerland6.6
UK6.3
France5.2
Hong Kong3.9
Cash 2.2
Other12.4