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Top 100 Funds 2020: Global Equity Income

Our suggestions for exposure to global equity income
Top 100 Funds 2020: Global Equity Income

UK investors tend to have a bias to their home market, but overseas exposure is important, especially as over the past few years the UK market has become more reliant on just a few dividend payers – some of which have now cut or suspended them. With the added uncertainty of the coronavirus pandemic as well as Brexit, diversity has never been more important and the many attractive opportunities outside the UK could improve your income.

 

NEW ENTRANT: TB Evenlode Global Income (GB00BF1QNC48)

Juliet Schooling Latter, research director at Chelsea Financial Services and Jason Hollands, managing director at Tilney, suggested adding TB Evenlode Global Income. This fund only launched in November 2017 but its lead manager, Ben Peters, is also co-manager of UK equity income fund, TB Evenlode Income (GB00BD0B7D55), which has a much longer and highly successful record. 

As with the UK fund, Mr Peters and his team focus on sustainable real dividend growth rather than chasing the highest yields in the short term. This means that the fund has one of the lower yields in the IA Global Equity Income sector – about 2.3 per cent as of 7 August. However, its total returns have been better than those of many of its peers. 

The fund’s managers like to invest in companies with high returns on capital and strong free cash-flow, with diverse inter-national revenue streams. They typically hold these for long periods resulting in low turnover of holdings, meaning that trading costs eat less into the fund’s returns.

The fund is fairly concentrated with only 25 to 40 holdings, so concentration risk and the potential for volatility are greater. However, analysts at FundCalibre say:

“These holdings usually have large diverse international revenue streams. TB Evenlode Global Income fund typically favours more defensive sectors like consumer staples or healthcare. It tends to avoid cyclical sectors, such as financials, basic materials and energy. Its managers aim to generate returns with less volatility than their peers.”

 

Troy Trojan Global Income (GB00BD82KQ40)

Troy Trojan Global Income only launched in November 2016 but its manager, James Harries, generated strong total returns and an attractive income while running Newton Global Income (GB00B8BQG486) between 2005 and 2015. 

“[Mr Harries] has now established a three year record at Troy Asset Management,” says Rob Morgan, pensions and investments analyst at Charles Stanley. “Performance has been outstanding and is built on a robust process. 

This fund has performed well relative to its IA Global Equity Income sector peers although offers a lower yield than many of them - 3.1 per cent as of 6 August. 

The fund aims to provide income with the potential for capital growth over three to five years. Mr Harries favours quality companies and looks to hold them for the long term, in particular consumer staples companies. He tends to avoid cyclical and highly capital intensive companies in favour of more defensive ones, so the fund is usually less sensitive to market moves. This means that the fund can lag strongly rising markets, but Troy Asset Management believes that a portfolio which suffers fewer destructive drawdowns will be in a better position to compound returns over the long run. 

Troy Trojan Global Income is also fairly concentrated: at the end of July it had just 33 holdings which could make it more volatile. 

 

Fidelity Global Dividend (GB00B7778087)

Fidelity Global Dividend has a good record of outperforming the IA Global Equity Income sector average, though can lag at times because of its defensive positioning. But this also means that it tends to outperform in difficult periods such as between the start of this year and early August, and in 2018 when it made positive returns in contrast to its peer group average’s negative returns. 

The fund’s manager Daniel Roberts scours the globe for attractive, growing income streams, as well as the potential for capital growth. But he never compromises on quality as he is concerned about preserving capital. For example, he places a heavy emphasis on scrutinising financial statements to ensure that companies can afford to pay the dividends they are offering and he looks at whether the current share price provides an adequate margin of safety. 

Fidelity Global Dividend is well diversified across sectors and geographies, and mainly invests in large companies with a market cap of more than £10bn. 

 

Murray International Trust (MYI)

Murray International has not done so well in terms of total returns recently, having underperformed broad global indices such as its benchmark, the FTSE World index, and the MSCI World index in 2018, 2019 and over the first half of this year. The trust also underperformed in 2013, 2014 and 2015, although has typically outperformed these indices historically.

But a number of the expert panel were in favour of keeping it on the list. “The trust has a value approach, is underweight the US in favour of Asia and Latin America, and has not benefited from the rally in tech stocks,” explains Priyesh Parmar, associate, investment companies research at Numis Securities. “[Its manager] Bruce Stout sees limited options in the developed world, and is looking to Asia and emerging markets, which are progressively capitalising on domestic growth opportunities.” Mr Parmar also likes the trust’s “high conviction approach and attractive dividend.”

Murray International’s board plans to maintain its progressive dividend policy, which should be helped by the fact that the trust can seek income globally and had revenue reserves of £75.7m at the end of its last financial year, enough to cover over a year’s worth of the level of dividends paid in the current financial year.

Murray International’s performance has bounced back in the past after other difficult periods, and it also has a relatively low ongoing charge of 0.61 per cent.

 

Fund/benchmark1-year total return (%)3-year cumulative total return (%)5-year cumulative total return (%)Ongoing charge plus any performance fee (%)Morningstar Sustainability Rating
Trojan Global Income 0.2 23.5 NA0.94Average
Fidelity Global Dividend0.5 22.5 76.2 0.92High
TB Evenlode Global Income(3.4)NANA0.85High
Murray International Trust share price(12.4)(10.8)47.0 0.61*Low
MSCI AC World index6.0 24.6 86.8   

Source: Morningstar, *AIC.                    

Performance data as at 31 August 2020.                    

**Data shown is for a different share class to the one indicated in the text

 

For all our selections across various sectors, see below:

Bonds (12 funds)

Wealth preservation (7 funds)

Global equity income (4 funds)

Overseas equity income (6 funds)

UK equity income (8 funds)

Global growth (9 funds)

UK equity growth (8 funds)

North America (4 funds)

Europe (6 funds)

Japan (5 funds)

Asia ex-Japan (6 funds)

Emerging markets (6 funds)

Specialist equity funds (9 funds)

Alternative assets (6 funds)

Property (4 funds)