The Analyst: Global equity funds attract attention
Saturday 26 April 2008
In the past, an investor looking for income from a portfolio of shares has pretty much been restricted to the UK. It is only comparatively recently that markets such as Europe, the US and Japan have really become available in this respect.
Some of this is, I believe, down to demographic change. As populations become older, there is a greater need for income – and especially the potential for a growing income – and this is exactly what dividend-paying shares can provide. Another contributory factor is that more companies are recognising that paying a growing dividend encourages greater shareholder loyalty.
As increasing numbers of companies across the world put more emphasis on dividends, it is natural that investment houses would launch global equity income funds. There are a few around at the moment, but a new launch has caught my eye and I will be focusing on it this week. It is the Elite Bloxham Global Equity Income Fund.
Even the most investment-savvy of you may be wondering who on earth Bloxham are. Well, they are an independent investment house – based in Dublin – that is owned by eight partners. This provides management with a clear and direct incentive to make their funds a success and consequently grow the business significantly.
It's understandable not to have heard of Bloxham before. This is because although the firm is well known and respected in the Republic of Ireland, it is only now that they are branching out into the UK.
The company already have a track record in this field, having run a fund (which wasn't available in the UK) for the last six years. Interestingly, dividend growth on the portfolio has been especially good, running at around 10 per cent per annum. The lead fund manager is Pramit Ghose, a 20 year veteran of the investment industry.
Bloxham screen approximately 2,000 stocks, which helps them identify possible companies for further research and possible future inclusion in the portfolio. In terms of the companies that Bloxham are looking for, ultimately they want to see a mature business with good cash flow at a relatively low valuation.
This means that they tend to favour older companies with long term track records, and they will usually avoid very fashionable areas. However, this is precisely what high yielding investment is about, that is, it is conservative and focused on quality.
It is a strategy that tends to out perform in bear markets but under perform when markets are moving up strongly. In fact, over the very long term – the last hundred years for example – dividends have made up more than half of the total return from stock market investing. The significance of compounding dividends should not be dismissed.
After the initial screening and further in-depth research, some 50 to 60 stocks are chosen for the portfolio. These are mainly selected on the merits of the individual companies; the managers will not place too much importance on the sector or country in which they are based.
One area they don't cover in any specific way is emerging markets. However, it should be remembered that many large companies are truly global and will generally have exposure to these areas anyway.
The process Bloxham uses doesn't allow them to buy low-yielding shares. This means that every company in the portfolio has to have an above-average yield before it can even be considered for inclusion. What is more, they have done a considerable amount of technical research in identifying share price trends for particular companies. Many of these are strategies similar to those used by hedge funds, and Bloxham are happy to exploit some of these trends in which they have the most amount of confidence.
Like most funds that aim to pay a high yield, Bloxham had a poor year in 2007. This was due to the credit crunch damaging the share prices of US financial firms, and because the fund was not invested in the low-yielding mining sector that rose strongly. An interesting aspect of the last year is that good quality companies have generally been taken down along with the bad. I suspect, however, that the market will become more discerning during the rest of this year and into 2009. In a market where quality will reassert itself, the Elite Bloxham Global Equity Income Fund looks just the type of investment that could prosper. With a prospective yield of 4.4 per cent and a strong track record of dividend, this is a fund I will be keeping an eye on in the future.
Mark Dampier is the head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more information about the funds included in this column, visit www.h-l.co.uk/independent
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