The argument in favour of income from overseas sources isn’t a new one. Morningstar’s Mike Taggart was part of a recent panel discussion on this very topic.
In fact, many investors buying UK equity income funds are already doing it--they may not realise the full extent to which it’s happening, but a quick glance at the constituents of the FTSE 100 index shows how international it’s become. Only 35% of the UK market’s revenues are derived from the UK, according to research by Morgan Stanley. The country of listing is becoming largely irrelevant for the mega-caps and, just because a stock is listed in London, doesn’t mean it should automatically be thought of as a UK company. Anglo American (AAL) is no more British than HSBC (HSBA), for example, yet both are in the FTSE 100 and both offer a decent yield to shareholders.
So it’s no shock to see a variety of income-focused funds being launched. The only surprise--and delight, as far as I’m concerned--is that asset managers are choosing the closed-end structure. It’s a story we’ve highlighted before in a previous article but there’s now even more activity afoot in the sector.
Get the Hint
Next week we’ll see the launch of Henderson International Income Trust (HInT). The marketing campaign, get the HInT, is a touch reminiscent of the New Star days but, wordplays aside, it’s definitely an interesting proposition. Henderson did their research ahead of launching this fund and came to the conclusion that UK investors have a naturally heavy UK bias in their portfolios. Further conversations led them to believe there is a gap in the market for a global ex-UK income fund.
The managers of HInT are targeting an initial yield of around 4%, with the expectation that yield will grow by 5%-10% per annum. Ben Lofthouse is the lead manager of the fund, but he’s got a team of regional specialists on hand to advise him, including Head of Multi-Manager Bill McQuaker for asset allocation. Henderson is no stranger to income strategies, either--they have a range of Dividend Income open-ended funds, although none which is global excluding the UK.
Perpetually Global
Another new global income CEF is being brought to the market by Invesco Perpetual. Details are still being finalised and the full prospectus is expected any day now, but we do know it will be run by Paul Boyne, whose Global Equity Income OEIC has a Morningstar Superior Rating and an A rating from OBSR, a Morningstar company. However, this global fund will be truly global and include the UK--IP believes it would be wrong to ignore the UK in entirety and they have a very strong UK equity income franchise on which Boyne can draw. The fund is likely to yield not less than 3.5% although we’re still waiting for full details.
World Portfolio
Then there’s Martin Currie Portfolio (MNP). This isn’t a new fund--it’s been in existence since March 1999. Although global, its current benchmark is the FTSE AllShare--a total mismatch, in our view. Yes, it has a dominant UK weighting but the fund is most definitely global in nature. So we’re pleased to see some changes being proposed here, with the full backing of the fund board. Not only will the fund be given a more sensible and representative benchmark (FTSE World), the private equity portfolio which comprises around 15% of total assets will also be going. This brings it much more into line with peers such as the new Invesco Perpetual fund. MNP’s yield is a little lower, at 2.76% at the time of writing, but the manager aims to progressively grow this over time.
These are just three examples of new or changing funds that are embracing the concept of global income. The ability for CEFs to build their revenue reserves and thus protect their dividend payments is just one of the many features we like about their structure. You can read more about how these work in our CEF Solution Centre.
So on this final day of Seeking Income Week, as you consider how to protect your portfolio’s income, remember how well the CEF structure lends itself to an income fund, and how the revenue reserve can help that ‘sleep at night’ factor.
