Expand your income horizons with Fidelity Global Dividend

A global equity income fund such as Fidelity Global Dividend Fund (GB00B7778087) is a good way of adding diversification to your portfolio. This fund aims to achieve income and long-term capital growth from a portfolio consisting of companies from around the world. It has a strong long-term record of outperformance and was in the top quartile of funds among the Investment Association global equity income sector over three and five years. It is yielding close to 3 per cent.

The fund has been managed since its launch in 2012 by Daniel Roberts, who has more than 10 years’ experience of running equity income mandates. Mr Roberts has demonstrated strong stock-picking skill over that period. According to FE Trustnet data, he delivered a cumulative total return of 107.4 per cent over 10 years, compared with 88.4 per cent for a composite of his peer group.

The manager uses a bottom-up approach to identify companies that offer a healthy yield with a growing level of income and potential for capital growth. He places large emphasis on dividend sustainability and aims to manage risk conservatively by choosing companies that have simple business models, predictable cash flows and little or no debt on their balance sheets.

The fund has a good risk/reward profile with a high three-year Sharpe ratio of 1.45. The Sharpe ratio measures how much return a fund generates for each amount of risk it takes. Any figure above one represents a good score.

"Security selection is key and the fund has added value for investors in downturns," adds Jeffrey Schumacher, associate director at Morningstar. "[Mr Roberts] applies a long-term focus, as evidenced by the fund’s low turnover rate. The portfolio is managed with conviction and is well balanced in terms of styles, sectors, and regions, as well as from a dividend perspective."

The US is the fund’s largest single country exposure, making up 35.7 per cent of holdings. However, this exposure is 16.4 per cent less than its benchmark MSCI AC World Index. In particular, the fund is underweight in the US FAANG tech stocks –Facebook (US:FB), Amazon (US:AMZN), Apple (US:AAPL), Netflix (US:NFLX) and Google parent company Alphabet (US:GOOGL), as these do not tend to pay dividends and the manager questions whether they have sufficient earnings support to warrant current valuations. Instead he prefers to invest in 'old tech' stocks such as Microsoft (US:MSFT). Although less exciting than the new tech giants, these companies often have well-established businesses, recurring revenue streams with plenty of cash on the balance sheet and a strong history of paying consistent dividends.

In October 2016, the fund added US semiconductor manufacturer KLA-Tencor (US:KLAC), which the manager describes as "another example of a relatively ‘boring’ company that offers exciting return prospects".  He believes the company is well positioned to benefit from strong demand from more advanced semiconductor technology demands from smartphones and tablets, as a leader in this area.

Despite good long term performance, however, the fund failed to beat its benchmark and sector average over the past year. Its underweight position to the FAANG stocks, which have surged ahead during the past year, is likely to have hurt performance. But the fund’s focus on providing investors with a sustainable growing dividend from diverse sources remains attractive.

For those wanting to expand your income stream beyond the UK Fidelity Global Dividend Fund's proven ability to deliver strong long-term returns makes it a strong contender. Buy. EA

Source: Morningstar as at 04/08/17