The best global income funds still throwing off cash

Bond yields might be alluringly high, but equity income investing is far from out of fashion – with investment platform Interactive Investor recently noting that income portfolios had started to make their presence known in its list of bestselling funds. 

Some of these names are familiar, with funds such as UK income play City of London Investment Trust (CTY) popping up on the list. And, as we recently pointed out in Income Majors 2023: the UK’s biggest dividend payers, there are also good options if you want to pick stocks in the domestic market yourself. 

But always bear in mind the need for diversification and to look beyond the UK – a reason to check how global income funds have fared this year in terms of payouts. Some clear leaders have emerged, but the differences between funds are pretty distinct.

The big money

To give an illustration of recent payouts, we have produced data showing how much a selection of open and closed-ended funds would have paid out as of early November 2023 had you put £10,000 into each of them in late December 2022. Much as the figures can be distorted by certain factors, from the frequency of a fund’s dividend payouts to the valuation at which you bought in, this should give a sense of how different approaches have fared. As the table shows, some highly disparate funds have made the list of top payers.

Looking at the top of the table, it’s immediately obvious that a fund with a good run of form in recent years has continued to do well by this metric. Murray International Trust (MYI) paid out roughly £770 over this period, according to FE data, equating to a yield of 9.1 per cent. The trust recently offered a competitive but less attractive yield of 4.8 per cent. Its shares traded on a discount of roughly 8.5 per cent to net asset value (NAV) in early November.

Income generated from £10,000 invested in December 2022

Murray International's longstanding manager, Bruce Stout, is due to retire, but it can be more important to assess a fund’s approach and how it differs from similar options than its manager alone. This trust tends to have a notable underweight to US equities relative to the MSCI World index, with a 27 per cent allocation to North America at the end of September. The Europe ex UK and Asia Pacific ex Japan regions each accounted for roughly a quarter of the trust’s assets, with its most prominent holdings ranging from Broadcom (US:AVGO) to emerging market favourite Taiwan Semiconductor Manufacturing (TW:2330), Samsung (KR:005930), and UK-listed companies including Unilever (ULVR) and Shell (SHEL).

This in part relates to a cautious approach, whereby Murray International's managers favour companies with quality metrics in high-growth areas such as emerging markets, and businesses that have strong balance sheets.

Their recent updates have struck the bearish tone for which they are typically known, with the managers warning that government bond sell-offs this year seemed reminiscent of October 1987, when “extreme stock market weakness was preceded by relentless selling of Treasury bonds over the summer months”. So they have stressed their focus on diversification, with a relatively even balance between the trust's three main geographical allocations and various different sector allocations. Roughly a fifth of the fund was in technology stocks at the end of July, with 15.5 per cent in financial services, 12.6 per cent in healthcare, 12.1 per cent in consumer staples and 10.4 per cent in industrials.

Murray International has made a small positive NAV return this year, with the trust's exposure to semiconductor shares, Latin American companies such as Telefonica Brasil (BR:VIVT3) and European shares including Siemens (DE:SIE) contributing to gains. The trust has, however, lagged the gains in global equity indices driven by US tech giants this year.

Maxed out

We recently made the case for Schroder Income Maximiser (GB00BDD2F083) on the basis that it has consistently offered a high income, in part because it sells call options to other investors ('An equity fund with a reliable 7% yield, IC, 3 November 2023). That enables the fund to consistently generate a rich yield, if at the expense of its total returns in the longer run.

Funds with a similar approach crop up in our list, such as UBS Global Enhanced Income Sustainable Equity (GB00BL0RSP87). The fund aims to generate at least 110 per cent of the income of the MSCI AC World index before fees, and claims to have a focus on quality criteria “to strive for dividend sustainability and lower volatility”. Its portfolio looks reasonably cyclical, however, with its biggest two positions at the end of September energy plays Pioneer Natural (US:PXD) and Chevron (US:CVX).

The fund’s biggest sector exposures are financials, information technology, consumer staples and energy, and roughly half its portfolio is in the US. 

But underperformance can be severe if the constraints of the enhanced income approach are combined with an underlying portfolio that struggles in its own right. UBS Global Enhanced Income Sustainable Equity has had a poor run, returning just 12.8 per cent in the five years to 6 November versus 61.6 per cent for the MSCI World index.

Fidelity Global Enhanced Income (GB00BD1NLJ41), which also uses a call overlay strategy, makes the list too. Its allocation differs notably from many global equities funds, with a big weighting to Europe, and around a fifth of its portfolio in the US and 14.2 per cent in the UK. It has a diverse set of top holdings, from private equity manager 3i (III) to Taiwan Semiconductor Manufacturing and Samsung. The fund held up better than UBS Global Enhanced Income Sustainable Equity with a return of 42.8 per cent over five years to 6 November.

The path less travelled

The need for yield can push income funds beyond the US and tech majors that have driven such strong returns this year. That's certainly the case with some other names on this list. Artemis Global Income (GB00B5N99561), for one, favours companies with strong levels of free cash flow generation and has tended to look beyond the likes of the major US tech stocks, hurting its overall performance but not its income generation. Around a third of its portfolio is in Europe with slightly less in the US. The fund's investment team has recently upped its exposure to banks and sold some exposure to energy companies on the expectation of depressed demand from China, and higher supply of oil and gas from Russia.

The fund's exposure to Japan, meanwhile, is at its highest-ever level with the investment team claiming that the country has "finally broken out of its long deflationary slump". They have also upped exposure to emerging markets, arguing that such economies are used to high inflation and demographic trends remain promising.