With cash and bonds offering precious little yield investors with a bit of time on their hands and a higher risk tolerance could do worse than turn to equity income. Dividends have long been a feature of the UK market, but with advisers recommending that you don't put all your eggs in one basket to mitigate risk and dividend culture spreading beyond the UK, a global income fund seems like a good option.
- Strong total returns
- Well-diversified
- Well-resourced investment team
- Defensive characteristics
- Not the highest yielder
Investing overseas for equity income provides access to markets that are relatively cheap, such as Europe, where - despite the higher volatility - dividend yields are more attractive than in the UK. Global equity income funds also provide access to individual companies that are not so easy for UK-based private investors to buy themselves.
The IC Top 100 Funds list already includes M&G Global Dividend and Invesco Perpetual Global Equity Income, but another fund worth a look is Newton Global Higher Income. This is well regarded among advisers and brokers such as Bestinvest, which says:
"Newton Global Higher Income is one of the longest running international equity income funds and also one of the best. Both the analysts and managers on the fund look at stocks globally, an important attribute when an increasing number of companies operate internationally. Stock selection also benefits from the inclusion of long-term economic trends, such as the growth of emerging markets, identified by Newton's strategy group. The fund suits income-focused investors looking to diversify their equity exposure away from the UK. The income orientation tends to give the fund defensive characteristics in falling markets so it may also appeal to more cautious investors."
This is one of the top performing Global Equity Income funds in terms of total returns. The fund focuses on sustainable dividends, reinforced by its strict yield discipline, which Newton says has given it notable resilience in difficult market conditions. All new holdings must have a prospective yield 25 per cent greater than the FTSE World Index, and any holding of which the prospective yield falls below the FTSE World Index's yield is sold.
| IC TIP RATING | |
|---|---|
| Tip style: | INCOME |
| Risk rating: | MEDIUM |
| Timescale: | LONG TERM |
Nearly 70 per cent of the fund's assets are invested in North America and continental Europe, providing UK-based investors with overseas exposure. The fund's managers are not constrained by any country, regional, sector or industry restrictions, and the fund is only measured against the FTSE World Index for comparative purposes.
Lead investment manager James Harries is responsible for all investment decisions, but is supported by global and regional equity analysts as Newton funds are managed via a team approach. Share recommendations come from sector-specific analysts.
The share selection process is informed by Newton's strategy group, which attempts to identify long-term trends, and analysts and fund managers focus their research on companies which will benefit from these.
The approach concentrates on investing in attractively valued companies with good prospects and strong fundamentals. Newton believes the most attractive shares tend to be issued by good quality, cash-generative companies with reliable dividend yields.
Although it doesn't offer the highest yield in its sector Newton Global Higher Income still has an attractive yield of 4.8 per cent, and there is no point having the largest yield if you are losing capital. Buy.
NEWTON GLOBAL HIGHER INCOME Inc (GB00B0MY6T00) | |||
|---|---|---|---|
| PRICE | 132p | MEAN RETURN | 13.82% |
| IMA SECTOR | Global Equity Income | SHARPE RATIO | 1.27 |
| FUND TYPE | Open-ended investment company | 1-YEAR PERFORMANCE | 18.37% |
| FUND SIZE | £2.82bn | 3-YEAR PERFORMANCE | 42.05% |
| No OF HOLDINGS | 55 | 5-YEAR PERFORMANCE | 40.34% |
| SET UP DATE | 30 November 2005 | TOTAL EXPENSE RATIO | 1.62% |
| MANAGER START DATE | 30 November 2005 | YIELD | 4.81% |
| TURNOVER | na | MINIMUM INVESTMENT | £1,000 |
| STANDARD DEVIATION | 10.41% | MORE DETAILS | www.bnymellonam.com |
Source: Morningstar.
Performance data as at 27 August 2012
Top 10 holdings as at 31 July 2012
| Reynolds American | 5.4% |
| Philip Morris International | 5.4% |
| Roche Holdings | 3.2% |
| Bayer | 3.2% |
| SSE | 2.5% |
| Merck & Co | 2.2% |
| Abbott Laboratories | 2.2% |
| Pfizer | 2.1% |
| China Mobile | 2.1% |
| GlaxoSmithKline | 2.1% |
Geographic breakdown
| North America | 38% |
| Europe | 30% |
| Asia Pacific ex Japan | 14.2% |
| UK | 11.6% |
| Latin America | 2.9% |
| Cash | 0.7% |
| Other | 2.6% |
