Aim: Income and growth by investing globally in equities, with the ability to invest in fixed income securities and convertibles
Minimum investment: Lump sum £1,000
Investment split: 100% globally in equities, fixed income securities and/or convertibles
Isa link: Yes
Charges: Initial 5.2%, annual 1.5%
Commission: Initial 3%, renewal 0.5%
Tel: 020 7601 6262
River & Mercantile’s third global equity fund aims for a high and rising level of income with the potential for long-term growth by investing globally in equities which have above average yields.
Hargreaves Lansdown senior analyst Meera Patel says: “This launch has comes at a time when income has been difficult to find in the market. With base rates in the UK at 0.5 per cent and banks offering paltry rates of interest on their accounts, investors are increasingly looking for income elsewhere and equity income is just one example.”
Patel notes that the UK is traditionally seen as the home to equity income investing, but the growth in dividends has been stronger outside the UK over the last decade. “The global market has delivered 5 per cent dividend growth over the last 10 years compared to 3.4 per cent for the UK market. The MSCI World index is also diverse with 582 companies with dividend yields above 3 per cent compared to 41 for the UK. “
Discussing the fund’s objectives, Patel says: “The aim of the River & Mercantile global higher income fund is to capture the attractive yielding opportunities from around the world.
The fund is unconstrained which means there are no restrictions in terms of where it can invest geographically. The fund has the ability to invest in the UK if this is where the manager, Alex O’Reilly, finds some of the best opportunities. It can also invest in emerging markets if he finds attractive opportunities in these economies.” She adds that emerging markets have by far seen the strongest level of dividend growth over the last 10 years compared to the other major markets with a growth of 11.5 per cent.
“What I like is that O’Reilly will manage the fund with a strict yield discipline. He will aim to deliver a yield that is 50 per cent higher than the yield on the FTSE All World Index, but my only concern is that this could be too high a target to set. For example, if the index was yielding 4 per cent, the manager would need to ensure the fund is yielding at least 6 per cent, if not more, and this is would be more difficult to achieve in such an environment,” says Patel.
Turning to the potential drawbacks, Patel reiterates her earlier point about the possibility that the manager has set too high a yield target and that he may need to lower this over time. “I like the idea that there is a yield discipline which ensures his ultimate focus is on companies that pay sustainable dividends and for those dividends to grow over time,” she says.
Identifying the main competitors, Patel says: “Newton global higher income would be the closest competition to this fund, but there are other global income funds like Bloxham global equity income, Lazard global equity Income, Schroder global equity Income and Sarasin international equity income.”
Summing up, Patel says: “There is a great choice of high-yielding companies in the global market and this fund is well placed to capture these opportunities. It would be good to see O’Reilly build a track record on this fund and will be disappointed if it does not rank highly relative to his global income peers over time.
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Average