Top 100 Funds 2019: Overseas equity income

Jupiter Asian Income Fund (GB00BZ2YMT70)

Jupiter Asian Income Fund only launched three years ago, but its manager, Jason Pidcock, ran BNY Mellon Asian Income (GB00B8KPW262) between 2005 and 2015, during which time he made decent returns and generated a good income. He has been investing in Asia Pacific ex Japan since 1993.

So far this fund has done well: over the past 12 months it is one the best performing of all Asia ex Japan funds and in 2018 proved more defensive than broad regional indices.

Jupiter Asian Income aims to generate income and capital growth over the long term. Mr Pidcock invests in companies he thinks are well managed and positioned in their industries, with scaleable business models and managements committed to sharing the profits with shareholders. Although this is an income fund he can invest in companies that have a below-average yield if he thinks they might enhance the fund’s capital growth.

Because the fund’s returns come from both income and capital growth, he wants the price of the shares to represent good value for money as an investment.

The fund is fairly concentrated – it had 30 holdings at the end of July and some exposure to emerging markets, which could make it more volatile than an equity income fund with more holdings and/or entirely invested in developed markets. However, this is mitigated by Mr Pidcock’s current focus on large and liquid companies with strong balance sheets and good governance.

Schroder Oriental Income Fund (SOI)

Schroder Oriental Income beats MSCI AC Asia Pacific ex Japan index in most years, which has added up to good total returns over the long term – as well as an attractive income. Although its yield of about 4 per cent is lower than those of other Asian equity income trusts it has grown its dividend every year since launch in 2005. It has been managed by Matthew Dobbs since launch, who has run Asian specialist investment portfolios for more than 30 years.

“Matthew Dobbs has a strong long-term track record through a focus on quality companies,” say analysts at Numis Securities. “The quality focus should aid the trust’s performance during periods when the economic outlook is uncertain, and compensate for the lack of high-growth stocks over the course of a cycle. Dividend growth has been strong over the past 10 years, averaging 6 per cent.”

A downside to this trust is its performance fee of 10 per cent of any outperformance of the NAV over an annual hurdle. This was not triggered in the trust’s last financial year to 31 August 2018, so its ongoing charge was 0.83 per cent. But in years when it does it can be considerably higher. For example, in the trust’s financial year before that, its performance fee plus ongoing charge of 0.86 per cent added up to 1.95 per cent.

However, the trust has recently amended its base management fee. It used to charge 0.75 per cent on net assets up £250m and 0.7 per cent on those above that. But from 1 September it will charge 0.75 per cent on net assets up £250m, 0.7 per cent on those between £250m and £750m, and 0.65 per cent on those above £750m.

In mid August the trust had net assets of around £656m, so there may not be an immediate benefit. But if the trust’s assets increase, its ongoing charge could reduce.

BlackRock Continental European Income (GB00B3Y7MQ71)

BlackRock Continental European Income has made good total returns since its launch in 2011, with mostly positive annual returns ahead of broad European benchmarks. It also has an attractive yield of around 4.5 per cent.

Much of this performance was generated when the fund had two managers, but since June last year the fund has been solely run by Andreas Zoellinger following the departure of Alice Gaskell. However, he has run the fund since launch and is supported by BlackRock’s European equity team. And over the past 12 months it is among the top performing funds in the IA Europe ex UK sector, beating many growth funds.

BlackRock Continental European Income also has few of its assets in the UK, making it a good diversifier for portfolios with UK equity income funds.

European Assets Trust (EAT)

European Assets Trust aims for capital growth by investing in small and medium-sized companies, and to pay a dividend worth 6 per cent of what its euro-denominated NAV is worth on 31 December each year. This means it has an attractive yield, which in August was around 6 per cent. The trust is able to make such a substantial payout because it partly pays dividends from capital as well as income from underlying investments.

Its cumulative total returns do not look good relative to EMIX Smaller European Companies (ex UK) index over three and five years. But this is largely due to underperformance last year and in 2016. In many other years since 2010, when Mr Cosh joined the trust’s manager, BMO, it has beaten this benchmark and in the year to date is ahead of its benchmark.

The trust, although listed on the London Stock Exchange, used to be domiciled in the Netherlands. However, in March it re-domiciled to the UK, which its board says should have a number of benefits, including a reduction in its ongoing charge of 1.1 per cent. The migration has also resulted in it having a premium listing on the London Stock Exchange, and inclusion in the FTSE All-Share and FTSE Small Cap indices. Its board hopes this will attract new investors and narrow its discount, which was around 7 per cent in mid August. It has in the past traded at a slight premium due to its attractive income profile.

The trust does not invest in the UK, meaning it is a good diversifier to UK equity income funds.

JPMorgan Global Emerging Markets Income Trust (JEMI)

JPMorgan Global Emerging Markets Income Trust offers an attractive yield of nearly 4 per cent and has made good total returns. It does not have a progressive dividend policy due to emerging market volatility, but has maintained or increased its dividend in every full year since its launch in 2010, from 4.7p to 5p in respect of its last financial year. The dividend has been fully covered by revenue every year except in 2016 when it was 98 per cent covered. The trust had revenue reserves at the end of its July 2018 financial year of £14.34m, large enough to cover 0.96 years' worth of its annual dividend.

The trust does not beat MSCI Emerging Markets index ever year, in part because it doesn’t hold low-yielding shares, which have driven this market’s performance. But it has done better in most calendar years since its launch, and outperformed this index cumulatively over one and three years, in NAV terms.

“This trust provides exposure to high-quality emerging market equities and offers access to an attractive level of income from the asset class,” say analysts at Winterflood. “The emphasis on yield has led to a portfolio that is notably different from the benchmark. While this may lead to periods of underperformance relative to the index, the trust’s emphasis on good quality companies paying attractive dividends will allow it to outperform over the longer term.”