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Ploughing the yield

International income funds continue to attract more traction in terms of new launches. This is a result of a real sea-change in so far as international markets are paying an income at all.

At least part of the reason is probably demographic as aging populations demand more income. Another more depressing conclusion is that companies cannot find anything better to invest in and are therefore returning money to shareholders.

The latest launch is the Elite Bloxham global equity income fund. Even the most investment-savvy of you may be wondering who on earth Bloxham is. Well, it is a Dublin-based independent investment house owned by eight partners. This provides management with a clear and direct incentive to make their funds a success and so grow the business significantly.

It is understandable not to have heard of Bloxham because although it is well known and respected in the Republic of Ireland, it is only now that it is branching out into the UK.

The company already has a track record in this field, having run a fund (not available in the UK) for the last six years. Dividend growth on the portfolio has been especially good, running at around 10 per cent a year. The lead fund manager is Pramit Ghose, a 20-year veteran of the investment industry.

Bloxham screens around 2,000 stocks, which helps identify possible companies for further research and possible future inclusion in the portfolio. In terms of the companies it is looking for, ultimately it wants to see a mature business with good cashflow at a relatively low valuation. This means that it tends to favour older companies with long-term track records and it will usually avoid very fashionable areas. However, this is precisely what high-yielding investment is about – conservative and focused on quality.

It is a strategy that tends to outperform in bear markets but underperform when markets are moving up strongly. Over the very long term – the last 100 years, for example – dividends have made up more than half the total return from stockmarket investing. The significance of compounding dividends should not be dismissed.

After the initial screening and further in-depth research, some 50 to 60 stocks are chosen for the portfolio. These are selected mainly on the merits of the individual companies. The managers will not place too much importance on the sector or country in which they are based.

One area they do not cover in any specific way is emerging markets. However, it should be remembered that many big companies are truly global and will have exposure to these areas anyway.

The process used by Bloxham does not allow it to buy low-yielding shares. This means that every company in the portfolio has to have an above-average yield before it can even be considered for inclusion. What is more, it has done a considerable amount of technical research in identifying share price trends for particular companies. Many of these are strategies similar to those used by hedge funds and Bloxham is happy to exploit some of these trends where it has the most confidence.

Like most fund managers that aim to pay a high yield, Bloxham had a poor year in 2007. This was due to the credit crunch damaging the share prices of US financial firms and because its fund was not invested in the low-yielding mining sector that rose strongly.

An interesting aspect of the last year is that good quality companies have generally been taken down along with the bad. I suspect, however, that the market will become more discerning during the rest of this year and into 2009.

In a market where quality will reassert itself, the Elite Bloxham global equity income fund looks just the type of investment that could prosper. With a prospective yield of 4.4 per cent and a strong track record of dividends, this is a fund I will be keeping an eye on in the future.

Mark Dampier is head of research at Hargreaves Lansdown


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