For too many investors it is better the devil they know when it comes to income funds. Last year for 10 out of 12 months, UK equity income funds were ranked as the most popular sector among British investors – despite warnings that the FTSE 100 was overvalued.
Failing to diversify your income stream increases risks to your portfolio, both in terms of capital losses and the sustainability of dividends.
When UK banks cut their dividends following the credit crisis, income investors lost up to a third of their yield stream – similarly following the Macondo oil spill, BP’s decision to cut its dividend hurt UK equity income investors. Last year’s Tesco accounts scandal told a similar story.
UK stocks have a place to play in an income focussed portfolio, but to ensure you are protected from single company or sector risks, diversification is key. Choosing to invest in funds that gather their dividends from across the globe means your capital benefits from a wide variety of economic drivers and can lead to a higher, more stable yield.
These three global equity income funds are highly rated by Morningstar fund analysts. We used the free Fund Screener to identify the top performers, and reveal what the analysts think of their portfolios.
Newton Global Higher Income
In recent years this Silver Rated fund’s bias to emerging-markets names in general and a preference for emerging-markets financials, particularly real estate investment trusts, have helped its overall performance as well as its ability to generate an above-average yield. In 2013 however, this exposure was the most significant detractor to the fund and resulted in it underperforming the category average. Over manager James Harries’ tenure, however, fund performance remains strong and more recently the fund is ahead of both peers and the index.
M&G Global Dividend
This Silver Rated global dividend fund has a strong record of outperformance, even in market environments where income investing has been out of favour.
Stuart Rhodes is approaching his sixth year as manager of this fund, which was launched for him in July 2008. He has 10 years of high-quality investment experience, having joined M&G in Jan 2004, working alongside the likes of Tom Dobell and Aled Smith.
Veritas Global Income
The Veritas fund is the most highly ranked by analysts, how have awarded it a Gold Rating.
A major strength of this fund is its management. Charles Richardson and Andrew Headley, who previously worked together at Newton, have been at the helm since the fund was launched in 2006 and have run the institutional version since late 2003. Richardson leads on this fund while Headley leads on Veritas Global Focus. They benefit from the support of an experienced team of five analysts, whose research is instrumental to the portfolio.
