EQUITY INCOME
GLOBAL EQUITY INCOME (2 FUNDS)
It’s easy enough to become overly reliant on UK shares for equity income, but global funds offer a good level of diversification. Dividend-paying companies also offered something of a refuge for many an investor in a difficult 2022 – although some income funds did better out of this trend than others. A disappointing showing on this front has prompted us to jettison one of last year’s options and introduce a fund that has turned heads in recent years.
NEW: JPMorgan Global Growth and Income (JGGI)
One criticism of income investing is that it forces money into sectors that offer little in the way of growth, obliging investors to overlook what are fundamentally superior companies. Some have tried to get around by this by simply investing for total return and then taking capital gains as an income stream. We’ve seen that trend feed through into the investment trust space, where multiple funds currently target total returns and pay out a percentage of their net asset value over the course of a year.
JPMorgan Global Growth and Income does exactly this, setting a target dividend each financial year that should amount to at least 4 per cent of NAV on a given date. This money is distributed on a quarterly basis.
This approach is a big part of why we like the trust, and why it enters the list. A total return focus allows the investment team to simply look for the best stocks rather than chasing yield – and gives them a flexibility to invest where they wish. That flexibility can also be seen in a nimble attitude to investment styles: the team is not wedded to simply growth or value investing but instead adapts to the times. To give one example, the portfolio benefited from holding names such as Salesforce (US:CRM) when lockdowns struck in 2020, but the team was nimble enough to cut back on such exposures and focus on 'reopening' trades later on.
The fund serves as a portfolio of between 50 and 90 best ideas, with the investment team making cash flow projections to forecast long-term expected share returns. This process, in place since 2008, is used to identify the winners and losers brought about by major structural changes, from changing consumption habits to the energy transition.
The process has generated some strong returns over time. As with any nimble fund there is a risk that the investment team simply gets a call wrong – and any fall in the NAV could mean a lower dividend in a given year. But this fund has a differentiated approach that still tends to work well.
Guinness Global Equity Income (IE00BVYPP131)
A fund with such a compelling approach that it inspired an IC stock screen, Guinness Global Equity Income is another fund that doesn't simply chase yield. The team has a total return investment approach but follows the premise that paying a reliable dividend can indicate a degree of resilience in a company’s operations. Its holdings range from power management company Eaton (US:ETN) to pharma name AbbVie (US:ABBV) and German exchange Deutsche Boerse (DE:DB1).
Recent performance seems to back up this theory, with the fund making a 2.1 per cent return during the widespread sell-off that marked 2022. We believe this concentrated portfolio continues to offer a good level of stability, with the prospect of solid returns over time.
Investors who want a chunky payout will find this fund’s historic yield of around 2 per cent disappointing. However, JGGI and the other options in our equity income categories should more than make up for that on the yield front.
DROPPED: Fidelity Global Dividend (GB00B7778087)
As we argued last year, an onus on companies that offer a growing but sustainable dividend and potential for capital growth means this fund “can seem less exciting than some peers but does come with defensive qualities”. That was the case in 2022, when the fund basically broke even for the year in terms of returns.
This is still a good fund, but some panellists argued that it should perhaps have performed even better than it did last year given its defensive aspects. Concerns about its performance give us a reason to remove it, making space for an interesting option in the form of JPMorgan Global Growth and Income.
REGIONAL EQUITY INCOME (3 FUNDS)
There’s plenty of yield to be had outside the UK, and various dedicated income funds allow investors to tap into dividends abroad. This year we drop one option to remove possible overlap, and introduce another name that might come as a surprise.
BlackRock Continental European Income (GB00B43MZ612)
This fund suffered less severely than many of its peers in the 2022 sell-off, only to then trail many other funds in the rally that has set in this year. Mixed performance aside, the team still generates an acceptable level of income from European shares, with its historic yield recently coming to around 3.3 per cent. Importantly, there's also good potential for dividend growth: the team focuses on fundamental company analysis and looks to find a mixture of businesses with large but secure dividends and those that can grow their payouts faster than others.
The fund is mainly focused on large-cap stocks, with quite the mixture of sector and geographic exposures. It has sizeable allocations to industrials, financials and healthcare, with France and Switzerland serving as the most prominent regions in the portfolio.
JPMorgan Global Emerging Markets Income (JEMI)
JEMI shareholders have had to contend with a fairly weak 18 months or so of returns, but there is still a strong rationale for holding this fund. It has a decent share price dividend yield which recently came to around 4 per cent, and besides investing for income the team also picks out companies that should have strong growth prospects. That means investors, over the long run, should benefit from exposure to what remains a plausible high-growth region of the global market.
Emerging market returns can admittedly be pretty spotty, and it’s also worth noting the fund does have some exposure to China – something that might prove controversial for some investors nowadays. All caveats aside, we continue to like this fund as a play on a region that offers levels of yield more readily associated with the UK market.
NEW: North American Income (NAIT)
This fund, highlighted by panellist David Liddell, shows that it can be possible to generate some yield from the very growth-oriented US equity market. It recently came with a share price dividend yield of around 4 per cent. The portfolio, which has a quality investment style but also a focus on valuation due to its hunt for those dividends, also saw a resurgence last year as more growth-oriented peers struggled.
The fund, whose biggest sector exposures are to financials, healthcare and energy, has managed to generate a good level of yield from an unexpected area for some time now. We find that attractive, but also like the fact that this fund could further help to diversify an investor’s exposure to the US. While it’s worth noting its style could again fall out of favour (as it has done this year), this is an interesting option for income hunters, and those seeking diversification, to consider.
DROPPED: Schroder Asian Income (GB00B559X853)
Introduced last year as a replacement for its closed-ended peer, we have no quarrel with this fund’s place in the list on fundamentals alone. The issue, instead, is that having it together with JEMI in the same category could cause a degree of overlap. Removing it allows us to branch out further geographically, via the introduction of NAIT.
Click below to download a performance table for all the funds in this year's list:
