So, there we were last week, reasoning that there is an imperative for UK-based equity-income investors to put more of their capital into overseas stocks; the point being that UK value stocks – which is where high-yield stocks are most abundant – have become a gathering of pariahs and that assessment isn’t likely to change any time soon. Thus, if UK investors want more capital growth from their income funds, they have little choice but to look abroad; unless, that is, they’re wonderfully skilled or ridiculously lucky.
Granted, the idea of ‘equity income’ almost as a standalone asset class is peculiarly British, which partly explains why income funds tend to be loaded with UK-based companies. Sure, there are overseas dividend champions, such as Procter & Gamble (US:PG), which has increased its payout 67 years running, or Nestlé (CH:NESN), which has paid a dividend every year since 1959. Arguably, stocks such as these should form the core of an income portfolio, but for UK investors they rarely do.
A major reason for this is the difficulty of investing in overseas stocks. True, that does not apply to shares listed on North American exchanges (Canada included). This is thanks to the simplicity and effectiveness of the W-8BEN form and the administrative machinery behind it, which ensures that UK investors in North American companies receive dividends as free of local withholding taxes as possible. For shares listed on exchanges almost anywhere else, however, the bother of avoiding local taxes, or even arranging receipt of the dividends, is too often more trouble than it’s worth. Hence the advantages of going into overseas markets via funds whose managers in effect – and for a fee – take care of those tedious tasks.