The sector, which came into effect on 1 January, comprises 19 funds with a global equity income remit, two of which are offshore funds (the Guinness Global Equity Income Fund and the Veritas Global Equity Income Fund).
But the M&G fund is absent from the list, which is surprising given its dominance in the global equity income space, second in size only to the £2.1bn Newton Global Higher Income Fund.
At the end of November 2011 the IMA announced it was to create a Global Equity Income Sector, a decision which followed a review of all funds in existing IMA sectors taking income from non-UK equity.
The IMA said the review exposed a need for a Global Equity Income Sector, an opinion it said member fund management groups agreed with.
To fall under the Global Equity Income umbrella funds must have at least 80% of their assets in global equity.
In addition, funds must be diversified by geographical region and intend to achieve a historic yield on the distributable income in excess of 110% of the MSCI World Index yield at the fund’s year end.
Funds which qualify for the Global Emerging Markets Equity Sector but also have an income bias will be excluded from the Global Equity Income Sector.
Omission by design?
The M&G Global Dividend Fund’s objective is to "maximise total return (capital growth as well as income) by investing in companies around the world that consistently increase their dividends" its fact sheet says.
Stuart Rhodes, manager of the fund since its launch in 2008, "does not chase high dividend yield alone", according to the group.
"He believes high yield is often a sign of a company in trouble or with limited growth potential. Instead he scours the globe for well-run companies that can deliver long-term dividend growth,” M&G continued.
The fund is ranked in the top 5% of the IMA Global Sector since launch and has a five star Morningstar rating. So M&G may well have decided it does not want to be constrained by the yield target of 110% the IMA has placed on the Global Equity Income Sector.
Darius McDermott, managing director at Chelsea Financial Services, said global dividends would be crucial to returns in 2012.
"Over the very long term, dividends make up roughly two-thirds of total equity returns. However, while many UK investors will automatically think of UK equity income funds when it comes to dividends, it’s not necessary to stick to the UK market.
"Global equity income funds offer much more diversification and indeed better dividends in many cases. Recent research from IW&I found that just five UK companies made it into the top 100 global companies based on yield, whereas 15 came from North America, 14 from Asia and 45 from Western Europe – even in the midst of a eurozone crisis."
McDermott said he "applauded the move" from the IMA to launch a Global Equity Income Sector, as the funds in it are very different beasts from Global Growth Funds (the sector they previously sat in).
The full list of funds:
- Aberdeen World Growth & Income Fund
- Artemis Global Income Fund
- Baillie Gifford Global Income Fund
- Guinness Global Equity Income Fund (offshore)
- Henderson Global Dividend Income Fund
- Invesco Perpetual Global Equity Income Fund
- JPM Global Equity income Fund
- Lazard Global Equity Income Fund
- Legg Mason Global Equity Income Fund
- Martin Currie Global Equity Income Fund
- Newton Global Higher Income Fund
- River and Mercantile Global High Income Fund
- Saracen Global Income and Growth Fund
- Sarasin Global Equity Income Fund (Sterling Hedged)
- Sarasin International Equity Income Fund
- Schroder Global Equity Income Fund
- Skandia Global Equity Income Fund
- Threadneedle Global Equity Income Fund
- Veritas Global Equity Income Fund (offshore)
Funds in the sector will be tested over three-year rolling periods to ensure compliance with the intended 110% yield. Those that fail to meet the 110% average yield for each three-year period will be removed from the sector.
