The company says these opportunities are the result of US companies having excess cash on their balance sheets and shareholders’ increased demand for dividends. Dividend tax cuts in 2003 have meant more firms seeing dividends as an attractive way to return cash to shareholders.
The new fund invests mainly in the equities of high quality US firms that are paying attractive dividends with the capacity to grow them over time. It also has the ability to invest in other asset classes which have a yield advantage relative to equities.
It targets a yield of 1 to 1.5 per cent above the Russell 3000 Value index and is managed by ClearBridge Advisors, Legg Mason’s biggest US equity subsidiary, using a team approach. Clearbridge chief investment officer Hersh Cohen and his fellow managing directors Michael Clarfeld and Peter Vanderlee run the fund along similar lines to the US equity income strategy they run in the US. They will take a bottom up approach to stock selection to focus on firms with high and growing dividends because these have historically performed better, with lower levels of volatility, than the broader market.
Legg Mason sees this fund as a way for UK investors to diversify the sources of income within their portfolios. The firm says many UK equity income funds are dependent on a few big names in a few sectors to provide income while its US equity income fund is diversified across sector and market capitalisation. Hedged and non-hedged share classes are available to cater for investors who are concerned about currency risk and those who are not.
The JPMorgan Asset Management US equity income fund could provide competition but some investors who want diversification away from UK equity income may prefer a global fund that is not restricted to a single country.