Global income funds: Where in the world to look for profits?

By Joe McGrath

Complaints by BP shareholders at the recent annual general meeting over how the company's dividend policy was communicated illustrated the pressure that UK companies are shouldering from dividend-hungry investors in the current climate.

Investors seeking a regular income from their investments have long been familiar with the benefits of funds within the UK Equity Income sector, which invest in British companies to deliver a regular income. But the economic downturn saw how vulnerable UK income funds are as British businesses slashed their dividends or ceased paying them completely. Investors that had pooled all of their cash earmarked for income into British funds found their returns significantly reduced, with banks and oil companies surprising many by cutting dividend payments.

A recent report from MSCI (formerly Morgan Stanley Capital International) highlighted why corporate investors started the trend of looking further afield for income.

In 2010, of the world's 100 top stocks for dividend payments, the UK had just six of them. Taiwan surprised many by topping the list, with 13 of the top 100 companies; Brazil was joint second with the US – both with 10.

The UK was back in sixth, behind Australia and Canada, and only just ahead of Israel and South Africa.

With this in mind, it is easy to see why investors (both individual and institutional) have started to broaden their income sources and, as demand has grown, the investment houses have launched a host of new funds to quench this income thirst.

Those asset management houses that have not launched funds have tweaked mandates or changed strategies to allow their fund managers to go further afield to attain the best returns for investors.

Skandia Investment Group is one of the most recent examples, renaming and restyling its old Equity Income fund to a Global Equity Income mandate. Ryan Hughes, senior fund manager at Skandia, says most income strategies had traditionally generated the majority of their yield from the UK, but the classic income stocks of formerly reliable business have cut their dividends.

He explains: "Dividend growth is coming back, not just in the UK but across the globe. The issue that you have had in the UK recently has been that yield has been dominated by just a few stocks. When BP went through its troubles last year, it made a lot of people see the importance of a diversified approach. Then there were the banks. Only now, people are beginning to realise that there is a global market out there."

Unfortunately for investors, the trade body which groups funds together in different clusters has not been quick to respond to this changing attitude. Despite calls for it to offer an easy-to-spot list of global equity income funds, there is still no definitive sector for open-ended income funds of this type, and they have been scattered between the "global growth" sector and eight other non-UK sectors.

Most investors are likely to have the majority of their equity income portfolio focused on the UK, and analysts believe there is still a good case to leave a healthy percentage invested there. However, one of the attractions of adding global equity income exposure is the diversification among sectors. For example, the US market offers a range of solid companies in the technology sector, which are truly world class and are paying a dividend at a sensible price. Microsoft is one of the most talked-about examples.

Andy Parsons, advice team manager at The Share Centre, says drawing stocks from a global universe makes for a larger opportunity set, meaning there are more opportunities for a fund manager to find yield.

He explains: "The US is a market leader in the information technology arena as well as being innovative in the automobile market. A global approach diversifies an investor's sector exposure and potentially provides access to some of the very best companies in the sectors and assets that the home market bias cannot deliver."

For those investors that don't want to leave their geographical diversification to chance, it is now possible to access country- or region-specific equity income funds with a wide variety of mandates.

In the most recent year, the highest income-generating fund was in the Asia Pacific (ex-Japan) sector, where the Schroder Asian Maximiser delivered a truly stunning 7.3 per cent yield. There was only one fund in the UK Equity Income fund sector to deliver a higher income than this: the Insight UK Equity Income Booster fund.

The highest-yielding return over the past three years within theIMA Global Growth sector wasthe Newton Global Higher Income, which returned an average yieldof 5.2 per cent.

While the Newton Global Higher Income might be the best-performing income fund (in terms of yield) in the Global Growth sector, it isn't the most popular. Institutional and retail inflows show that investors have been opting for the M&G Global Dividend fund instead.

According to data from Financial Express, the M&G Global Dividend fund saw inflows of £504.9m in the six months to the end of March, compared to just £372.1m for the Newton fund.

* This research is taken from the Global Income survey in the Mayedition of What Investment magazine, out in newsagents on Tuesday.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

News
election 2015The 10 best quotes of the campaign
News
A caravan being used as a polling station in Ford near Salisbury, during the 2010 election
election 2015The Independent's guide to get you through polling day
News
people
Voices
David Blunkett joins the Labour candidate for Redcar Anna Turley on a campaigning visit last month
voicesWhat I learnt from my years in government, by the former Home Secretary David Blunkett
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Editor-in-chief - Financial Services - City, London

    £60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

    Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

    £25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

    Guru Careers: Management Accountant

    £27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

    Guru Careers: Project Manager / Business Analyst

    £40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

    Day In a Page

    General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

    'We will not sit down with Nicola Sturgeon'

    In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
    VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

    How ordinary Britons celebrated VE Day

    Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
    They came in with William Caxton's printing press, but typefaces still matter in the digital age

    Typefaces still matter in the digital age

    A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
    Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

    'Missing link' between Earth's two life-forms found

    New microbial species tells us something about our dark past, say scientists
    The Pan Am Experience is a 'flight' back to the 1970s that never takes off - at least, not literally

    Pan Am Experience: A 'flight' back to the 70s

    Tim Walker checks in and checks out a four-hour journey with a difference
    Humans aren't alone in indulging in politics - it's everywhere in the animal world

    Humans aren't alone in indulging in politics

    Voting, mutual back-scratching, coups and charismatic leaders - it's everywhere in the animal world
    Crisp sales are in decline - but this tasty trivia might tempt back the turncoats

    Crisp sales are in decline

    As a nation we're filling up on popcorn and pitta chips and forsaking their potato-based predecessors
    Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

    Ronald McDonald the muse

    A new wave of artists is taking inspiration from the fast food chain
    13 best picnic blankets

    13 best picnic blankets

    Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
    Barcelona 3 Bayern Munich 0 player ratings: Lionel Messi scores twice - but does he score highest in our ratings?

    Barcelona vs Bayern Munich player ratings

    Lionel Messi scores twice - but does he score highest in our ratings?
    Martin Guptill: Explosive New Zealand batsman who sets the range for Kiwis' big guns

    Explosive batsman who sets the range for Kiwis' big guns

    Martin Guptill has smashed early runs for Derbyshire and tells Richard Edwards to expect more from the 'freakish' Brendon McCullum and his buoyant team during their tour of England
    General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

    Miliband's unlikely journey from hapless geek to heart-throb

    He was meant to be Labour's biggest handicap - but has become almost an asset
    General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

    On the margins

    From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
    Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

    'This is the battle of young Egypt for the future of our country'

    Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
    Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

    Why patients must rely less on doctors

    Improving our own health is the 'blockbuster drug of the century'