The company says that many investors are looking for income, but income is scarce in a low interest rate environment. UK equity income funds have been available for some time but Standard Life Investments points out that continental Europe can provide high yields and greater diversification. The region has a bigger pool of companies than the UK, so the fund manager has more choice.
The fund aims to produce a yield of 15 per cent above that of the FTSE Europe ex-UK index and will also have the potential for capital growth. It will comprise 40-70 stocks based on stockpicking skills rather than what is contained in the index.
If fund manager Will James and the European equity team do not like a sector or stock, they do not have to hold it. They also have the flexibility to invest in convertible bonds and to take overweight or underweight positions of up to 15 per cent relative to the index.
James will look for competitive companies with strong earnings prospects that are effiiciently run. Stock selection will be underpinned by SLI’s focus on change investment philosophy, which recognises that different factors drive markets at different times. This leads James to focus on what is causing the market to change and whether this will produce a revised price for any given stock. Profits can be made by identifying companies that are improving but the share price does not fully reflect the changes.
Europe has seen some dividend cuts amid the global downturn, but it is less dependent on banks to provide high yields than the UK. James and his team should be able to find high-yielding stocks in a range of sectors but research and stockpicking will be paramount given the depresssed state of the markets.