The article analyzes top-performing global equity income funds, emphasizing diversification beyond UK shares. JPMorgan Global Growth and Income (JGGI) and Guinness Global Equity Income are highlighted for their flexible approach and focus on total return rather than solely high dividend yields.
The selection includes Artemis Income, Diverse Income, and Temple Bar. Artemis Income is presented as a core holding with a focus on large-cap shares and a strong performance record. Diverse Income offers a multi-cap approach, while Temple Bar emphasizes value investing. Martin Currie UK Equity Income is dropped from last year's list due to underperformance.
This section features BlackRock Continental European Income, JPMorgan Global Emerging Markets Income (JEMI), and North American Income (NAIT). BlackRock Continental European Income offers diversified European exposure, while JEMI provides access to emerging market dividends with a focus on China and Taiwan. NAIT is praised for its ability to generate income from the US market and act as a diversifier. A change of investment manager is noted for NAIT.
With enormous yields on offer from FTSE 100 constituents such as Legal & General (LGEN), it feels easy enough to generate an income from domestic shares in one form or other. But UK dividend investors still tend to rely quite heavily on a handful of specific companies and sectors, meaning it makes sense to diversify by looking further afield.Â
Overseas shares do have something to offer the income investor, and funds with a global remit are a good way to access many of these. We stick with the two options from last year, both of which have an interesting take on income investing.
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JPMorgan Global Growth and Income (JGGI)
Equity income investing should involve much more than simply buying shares with the highest dividend yields, and this trust illustrates that alternative approach pretty well. Like some of its stablemates, JPMorgan Global Growth & Income seeks to generate strong capital gains and then pay a dividend at least partly out of net asset value (NAV). It sets a target dividend each year that should amount to around 4 per cent of NAV on a given date, with the money distributed each quarter.Â
In practice, this means that rather than relying on the shares paying the highest dividends, the investment team can instead buy what it deems to be the most attractive shares, allowing a very flexible approach. The team has tended to back companies across different sectors and investment styles, meaning the portfolio has often performed well even as market sentiment has shifted.
JGGI shares have returned more than 14 per cent so far this year, have made 22.6 per cent in 2023 and suffered a modest drawdown of around 5 per cent in the bear market of 2022 (when the MSCI World index fell nearly 8 per cent).
The fund serves as a portfolio of between 50 and 90 best ideas, with the investment team making cash flow projections in order to forecast long-term expected share returns.
The portfolio's top 10 holdings can admittedly sometimes look like a list of current market darlings, what with it including Microsoft, Amazon (US:AMZN), Apple (US:AAPL), Nvidia and TSMC, but it has tended to strike a good balance between different types of shares.
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Guinness Global Equity Income (IE00BVYPP131)
A fund that has inspired its own IC stock screen (our 'Geico' offering), Guinness Global Equity Income also shows little interest in chasing yield. Instead, the team has a total return investment approach and follows the notion that reliably paying a dividend could be a sign of a company's resilience.
The company has just 35 holdings spread across similar (and small) position sizes, with its investments ranging from Unilever (ULVR) to Roche, BlackRock (US:BLK) and Coca-Cola (US:KO).
Performance has been pretty solid in recent times, even if, as you may expect from a more defensively managed fund, the portfolio has not kept up with the Magnificent Seven-driven gains of the MSCI World index. The Guinness fund returned 9.5 per cent last year versus 16.8 per cent for the index and has made 11.3 per cent for investors so far in 2024 versus 12.4 per cent for the MSCI World.
We favour this as a solid fund for the longer term with a reasonable yield of around 2 per cent. Investors may well, however, be tempted by punchier options with higher yields.
The UK continues to offer some chunky dividends and various funds of different stripes are on hand to tap into them. This year, we switch out one option but otherwise stick to what we view as a fairly varied line-up.
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NEW: Artemis Income (GB00B2PLJJ36)
We included a Martin Currie fund in last year's list on the premise that it serves as a strong core UK income holding, focused on generating payouts from many of the big names in the domestic market.
However, panellist Ben Yearsley has questioned his previous faith in the fund, wondering if its returns are too "average" and could be improved upon. Also of note in this context is the fact that Colin Morton, a name associated with its former successes, retired at the end of 2022.
So we have jumped ship to another well-known fund in the space, Artemis Income, which is focused predominantly on large-cap shares and targets a combination of income and growth. Its trailing 12-month yield comes to around 3.5 per cent, according to Morningstar data.
The fund, headed up by Adrian Frost, has a strong performance track record, be it suffering less than peers in a difficult 2020 or generating strong returns this year and last.
Around a third of the portfolio is in financials, with a slightly lower allocation to consumer discretionary stocks. Some familiar names sit among its top 10 holdings, from private equity specialist 3i (III) to Relx.
We view this as a core holding for investors who want to receive domestic income streams in a diversified fashion.
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Diverse Income (DIVI)
Its name may sound similar to our above description of the Artemis fund, but this investment trust's portfolio is in reality very different. It looks further down the market cap spectrum for dividends, with around a fifth of the portfolio in FTSE Small Cap stocks, a similar amount in the FTSE 250 and a big allocation to Aim shares, as well as some large-cap exposure.
DIVI's recent performance track record tells the story of small and mid-cap shares pretty neatly, with shareholders taking a loss of nearly 17 per cent in 2022 and another 5.7 per cent in 2023.
This worried some of our panel at the time, but we believed that a "multi-cap" income approach still had merit, and that the fund could well capture a small and mid-cap rebound when it finally arrived.
Better news has duly arrived in the meantime, with the shares making a return of almost 15 per cent so far in 2024.
The trust's shares still looked reasonably cheaply priced at the time of writing, trading on a 4.6 per cent dividend yield and at a discount of 8.8 per cent to NAV.
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Temple Bar (TMPL)
With its shares currently offering a 3.6 per cent dividend yield and trading on a 4.9 per cent discount to NAV, Temple Bar's metrics might not shout "bargain" in the same way as those of some rivals.
But we like this fund for its dedicated value investing approach, and the simple fact that Redwheel's Ian Lance and Nick Purves, who took over the portfolio in late 2020, have proved to be more than a safe pair of hands. The trust's shares outpaced the FTSE All-Share in 2021, 2022, 2023 and again this year so far.
And while the UK market has already seen something of a recovery, it should continue to prove a good hunting ground for contrarian investors.
Lance and Purves tend to have some fairly strident views on the state of markets, and in accordance with this the portfolio looks fairly concentrated.
Just over half the portfolio is in the top 10 holdings, with 7 per cent allocated to top name NatWest, 6.6 per cent to Shell (SHEL), 5.4 per cent to Barclays (BARC), 5.3 per cent to BP (BP.) and 4.9 per cent to ITV (ITV).
It might not surprise investors to hear, then, that the team views banks, insurance, energy, media and consumer cyclicals as the UK sectors with the most attractive valuations.
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Introduced last year as a "core" UK income holding, this fund has quickly fallen out of favour with some of our panel, leading us to favour a name that has served a similar role but with greater success.
There's plenty of yield to be had outside the UK, and investors can opt to find dividends in a more targeted fashion than by simply using a global fund. We stick with three options covering Europe, the emerging markets and the US.
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BlackRock Continental European Income (GB00B43MZ612)
It's worth acknowledging that this fund has in recent years had a habit of slightly underperforming European markets and rival portfolios, albeit it has still performed fairly well.
It made a very strong sterling total return of 12 per cent last year, for example, but this put it slightly behind the FTSE Developed Europe ex UK index and the average fund in the Investment Association's Europe ex UK sector.
The fund did, in fairness, suffer slightly less in the sell-off of 2022, and it's perfectly logical for income funds to do less well in the good times and less poorly in the bad than their growth-oriented peers. The strategy currently comes with a yield of more than 3 per cent, a decent enough level given the potential for dividend growth in future.
The team focuses on fundamental company analysis and looks to find a mixture of businesses with large but secure dividends and those that can grow their payouts faster than others.
The fund focuses mainly on large-cap shares, with its biggest geographic allocations to France, Sweden and Denmark.
It has made a sizeable bet on industrials, which make up some 35 per cent of the portfolio, with decent weightings to financials and healthcare, too.
This isn't the most concentrated fund, however, with the top 10 holdings making up around 38 per cent of its assets.
It's also worth noting that just 2.5 per cent of the portfolio is in UK shares, reducing the risk of overlap for someone who already receives domestic dividends via other assets.
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JPMorgan Global Emerging Markets Income (JEMI)
This investment trust had suffered a run of poor performance as of this time last year, but latest share price total returns are at least looking reasonable when compared with the fortunes of the MSCI Emerging Markets index.
JEMI shareholders made 2.8 per cent in 2023, a little behind the 3.6 per cent gains for the index, and the shares have returned nearly 8 per cent so far this year. The shares also trade at an enticing dividend yield of around 4 per cent, and on a discount of 12 per cent to NAV.
We should note the fund does have some overlap with both its index and a typical growth-oriented emerging market portfolio.
Take its 9 per cent exposure to top position TSMC. The company represents roughly the same proportion of the MSCI Emerging Markets index and has a big presence in many an emerging markets (EM) fund after a strong period of performance for the semiconductor sector.
JEMI more generally has big allocations to China (24.6 per cent of the portfolio) and Taiwan (22.6 per cent), with smaller weightings to Korea (12.1 per cent) and India (9 per cent).
Like any emerging market fund, this will be volatile at times. But the region looks pretty promising on the dividend front, and this is a good way to access that potential.
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North American Income (NAIT)
We like this fund's strategy for a few reasons. It shows that it can be possible to generate income from the US, a notoriously growth-minded market. To that end, it recently came with a share price dividend of some 3.8 per cent, and it also trades on a 10.5 per cent discount to NAV. The trust, which is run with a quality investment style but also with an eye on ensuring valuations don't look too excessive, is also interesting in that it can act as something of a diversifier to other US equity exposure.
To illustrate this, it's worth noting that NAIT shares returned nearly 13 per cent in 2022, a year that saw the S&P 500 shed 9.3 per cent in sterling terms. To turn that on its head, the trust's shares were fairly flat in 2023 while the S&P 500 soared ahead. This year it's performing well, but lagging the market. The fund holds 40 shares and eight bonds, with a fifth of the portfolio in financials and 17.2 per cent in healthcare.
Investors should also be aware that this trust is in the process of changing its investment manager, from Abrdn to Janus Henderson, although long-standing portfolio manager Fran Radano will continue to run the investment strategy.
We are happy to give the trust the benefit of the doubt for now, but will keep a close eye on developments.
Click below to download a performance table for all the funds in this year's list:
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