How are global equity income funds faring?

Charlotte Richards talks to global equity income fund managers about the benefits (and drawbacks) of the new sector classification, and what is driving the performance of their portfolios.

The past few years has seen a deluge of global equity income funds enter the market. In response, the IMA created the Global Equity Income sector in January 2012 and 20 income-focused funds, which were previously part of the 200-strong Global sector, moved to form the new category.

To be included in the sector, the IMA specifies funds must invest at least 80% of their assets globally in equities, in addition to be diversified by geographical region. It also stipulates the fund must have the intent to achieve a historic yield on the distributable income in excess of 110% of the MSCI World Index yield at the fund’s year end.

Supporters of the new sector believe it will help professional investors compare funds and offer more clarity between peer groups.

Good stock selection

Luke Stellini, global equity product director at Invesco Perpetual, says the new sector is a “natural home” for the £183.5m Invesco Global Equity Income fund, while Sonja Laud, manager of the £72.4m Schroder Global Equity Income fund, says it helps comparability to her peers.

Despite being a global sector, managers stress fund performance is down to good stock selection as opposed to specific regions.

Samantha Fitzpatrick, senior investment manager on the Aberdeen Asset Management global equity team, says there is not one specific region that has aided the performance of their World Growth & Income fund.

The fund, which has returned 4.7% compared to the sector average of 1.4% as of 20 January, according to Morningstar, is the sector’s fourth best performing fund over one year.

She says owning “weak financials”, in particular, Swedish bank Nordea, has “dragged down” performance recently due to the sheer weight of negativity on European financials.

However, although Ajay Dayal, investment director at Legg Mason, agrees financials have not performed well, he says holding a number of stocks in the sector has ultimately been beneficial to the £14.8m Legg Mason Global Equity Income fund. He says: “A lot of banks in the US are looking healthier than they did two years ago. Having small positions in the US is not a bad place to be. But it has to be selective.”

Although Stellini credits the Invesco Perpetual fund’s success to stockpicking rather than selecting specific regions, he says the US has been “a good positive attribute to the performance.”