The fledgling global equity income sector offers UK investors an opportunity to diversify when looking for income but the sector is currently lagging behind UK focused funds when it comes to the level of income paid out.
Lower global equity income cash returns is a reflection of corporate cultures on both sides of the Atlantic, but US attitudes may be starting to change.
Lipper income data shows the top 10 dividend-paying UK equity income funds (excluding dividend-enhanced strategies) returned an average £20 per £1,000 invested more over the past three years.
The top returning fund for the past two years is the £875m Threadneedle Global Equity Income fund, which paid out £165 for every £1,000 invested.
In comparison, the best UK equity income fund, Insight Equity Income Booster, paid out £255 over the same period.
Fund manager Stephen Thornber says: “It’s a true global, go-anywhere, fund. I have got holdings from the UK, to Europe, to Brazil to Taiwan and Cambodian casinos.”
The gambling play is an Asian theme representing six per cent of his portfolio, one of many ideas he spreads across the portfolio, he says.
“They are so cash-generative and they return that cash. Unless they are building new casinos they have no need for it,” he adds.
The fund had been overweight Asia and emerging markets, but had gradually moved into the United States and Japan “where dividends are hard to come by”, he says.
An appreciating pound is also eating into the value of foreign dividends and 2009 had been a windfall year for special dividends, he notes.
Since Threadneedle launched the global fund in 2007 when there were about seven rivals, the field has grown to about 30, he says.
The global equity income sector is considerably smaller than the UK focused sector.
Only 17 funds have a three-year track record compared with 84 in the UK Equity Income sector.
The average return for the top 10 global income funds over the past three years was £149.50, compared with £171.70 for UK Equity Income.
Hargreaves Lansdown senior investment manager Adrian Lowcock says UK equity income payouts are larger than global funds because of the deeply embedded dividend culture in Britain.
Although the sheer size of the US market makes it the largest dividend payer, accounting for a third of all worldwide distributions, US firms have traditionally reluctant to pay out profits to investors.
This has started to change recently and US companies have boosted their dividends by almost 50 per cent in the past five years.
UK improvements have grown a more measured 39 per cent over that time, and Lowcock believes that is because cutting dividends is anathema to British corporate
“In the US, paying dividends has traditionally been seen as a sign of weakness,” says Lowcock.
Top five global equity income funds by income paid
|Fund name||Income paid £||Capital value £|
|Threadneedle Global Equity Income||165.04||1092.4|
|Artemis Global Income||159.33||1252.21|
|Lazard Global Equity Income||156.78||1096.75|
|Newton Global Higher Income||153.78||1128.13|
|Sarasin Global Equity Income||153.74||1087.86|
|Analysis of Lipper data by Bruce Dalton|
|Dividend paid is based on total income paid in three years ending December 31, 2013, based on £1,000 invested|
|Capital value is after dividends paid out based in £1,000 initial investment|