With interest rates across developed markets normalising after years of loose monetary policy, income funds have their work cut out when it comes to offering an attractive yield. One benefit of investing in a fund rather than holding cash is the ability to reinvest the yield and utilise the power of compounding. Investors can also benefit from attractive growth – if the right manager is chosen – and a sector such as IA Global Equity Income can offer regional diversification advantages.
Using data from FE Fundinfo, Portfolio Adviser shines the spotlight on the five global equity income funds with the highest yields, which have also achieved top-quartile total returns relative to their average peer over three years.
Schroder Global Equity Income – 4.96% yield
With a total return of 56.8% over three years, the £296m Schroder Global Equity Income Fund has outperformed its average peer in the IA Global Equity Income sector by 23.4 percentage points.
Managers Nick Kirrage, Simon Adler and Liam Nunn aim to outperform the MSCI World Index – in terms of income and growth – over three-to-five year periods. They are unafraid to deviate from the benchmark, however, with the fund currently allocating just 35.1% to the US – less than half of the weighting of the index. In contrast, it has significant overweights to Japan (more than double the index at 14.5%), Germany (more than quadruple the index at 10.8%) and the UK (triple the benchmark at 9.7%).
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Largest holdings within the 51-stock portfolio include German car part manufacturer Continental AG, British pharma and biotech firm GSK and Japanese PR company Dentsu Group.
Artemis Global Income – 4.21% yield
Co-managed by Jacob de Tusch-Lec and James Davidson since 2010 and 2020 respectively, this £1.1bn fund aims to outperform the MSCI All-Country World Index (ACWI) over five-year periods. Over the last three, however, it has returned 45% compared to its average peer’s return of 33.4%.
The fund will invest across the cap spectrum, with the managers focusing on companies with high levels of free cashflow, attractive valuations and decent yields. They also adopt a macro overlay, searching for disconnects between economic indicators and investor sentiment.
It currently has 33.8% in European equities, 27.8% in US equities and 12.7% in Japan. Its largest holdings include HSBC, Italian steel pipe manufacturer Tenaris and Japanese engineering firm Mitsubishi Heavy. The fund will have a relatively diversified portfolio of between 60 and 100 stocks at any one time.
Aptus Global Financials – 3.9% yield
Launched in 2012, Aptus Global Financials has returned 60.7% over three years. Benchmarked against the MSCI ACWI Financials Index, the £68.3m fund aims to provide both capital and income growth through holdings in financial services firms.
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In particular, manager Johnny de la Hey focuses on banks, investment banks, insurance and asset management companies, with the likes of pan-European commercial bank Unicredit, Spanish financial services firm Banco de Sabadell and Italian banking group BPER in its list of top 10 holdings. Companies are chosen with a valuation-based approach, focused around a company’s profitability relative to consensus expectations.
This stock-picking has resulted in an almost 60% regional exposure to Europe, and a 30% exposure to the UK.
Saracen Global Income & Growth – 3.4% yield
Saracen Global Income & Growth, which is managed by Graham Campbell and Bettina Edmonston, aims to achieve income and capital growth over rolling five-year periods. With an active share of 95% and a concentrated portfolio of 44 holdings, the fund tends to differ widely from its benchmark in terms of positioning.
Campbell and Edmonston aim to find leading, low-risk businesses across the globe which have been underestimated by the broader market. Its largest holdings currently include French materials distributor Saint Gobain, US tech firm Cisco, HSBC and Roche. In terms of region, 45% of the fund’s holdings are domiciled in Europe, 30% are in North America and 15% are in the UK.
Saracen Global Income & Growth has returned 54.7% over three years, outperforming the IA Global Equity Income sector by 21.3 percentage points.
Royal London Global Equity Income – 3.12% yield
Niko de Walden’s £574m Royal London Global Equity Income Fund aims to outperform the MSCI World Net Total Return Index by 2% per annum over rolling three-year periods, as well as produce an income 20% higher than the benchmark’s over the same period.
See also: Five top-performing UK equity funds quietly achieving in an unloved sector
Some 60% of the fund is currently based in the US while it also holds 18% in the UK. Its largest individual holdings include Microsoft, American steel producer Steel Dynamics and US biopharma firm Gilead Sciences. The portfolio comprises 62 holdings, with its top ten holdings accounting for one-third of the overall portfolio.
Royal London Global Equity Income, which yields 3.12%, has achieved a 56.9% total return over the last three years.
