Is your portfolio earning you the best possible rate of income? Are you prepared for this year's interest rate rise? We show you how to maximise yield and where to find dividend payers in our Guide to Income Investing.
Artemis Global Income
Artemis Global Income remains a distinct offering when compared with its global equity-income peers, says Morningstar senior fund analyst Muna Abu-Hbsa. The fund was launched in July 2010 and has been managed since then by Jacob de Tusch-Lec, while this is his first foray into the management of a global fund, we believe he benefits from the fact that he has always considered stocks in a global framework and, more importantly, that he now works alongside Adrian Frost and Adrian Gosden, managers of Artemis Income, whom we hold in high regard.
In constructing the portfolio, the manager differentiates the fund from most of its peers. De Tusch-Lec is very cognisant of the concentrations and correlations that exist within the universe. As such, he actively seeks to ensure that the portfolio is distinctly different from peers' by avoiding the obvious equity-income plays, in both the UK and globally. A further feature is an emphasis on limiting the strong correlations between stocks and sectors that tend to arise in income-oriented portfolios. As a consequence of this, the fund is likely to have a greater bias to mid- and small-cap stocks, which could result in a slightly more-volatile return profile over time.
Lazard Global Equity Income
Lazard Global Equity Income remains a worthy option for investors seeking a high-yielding global equity-income fund, say Morningstar fund analysts.
A three-man team led by Patrick Ryan has managed this fund since its 2007 inception. The managers have run a similar fund for US investors since 2005 and all three have an association with Lazard dating back to the 1990s. This longevity is highly beneficial given that the New York-based trio leverages the group’s regional resources.
The majority of stocks in the portfolio derive from Lazard’s regional funds. The local teams do not focus on yield; it is left to the income managers to identify the 100 highest-yielding stocks from the local-level analysis. If the team cannot find enough suitable names from this list, then they may invest up to 33% of assets in stocks outside the regional portfolios.
Like most income managers they stress the sustainability of dividends, which for them means they prefer companies with very low levels of debt as this affords equity investors more protection. They also emphasise cyclical growth more than peers, and this is executed through a number of small positions in higher-beta names, carefully balanced by heavy stakes in dividend aristocrats. The total portfolio generates a 5% yield per annum, one of the highest amongst peers.
Veritas Global Equity Income
This fund remains amongst the strongest offerings in its sector says Abu-Habsa, winning a Gold Rating from Morningstar analysts. 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’s launch in 2006 and have run the institutional version since 2003.
The fund's standout characteristic is the extent to which the managers aim to deliver real returns to investors. They invest in companies with durable competitive advantages and strong, sustainable cash flows that can lead to dividend payments. Yield is one of the considerations, but the managers are not prepared to invest in high-yielding companies that are unlikely to contribute to capital growth. Finally, they also use a thematic framework to help identify industries globally that they believe will benefit from long-term structural drivers.
The real-return focus has generally driven the fund to strong returns in different market environments. However, performance has struggled since the end of 2013. As bond yields have dropped sharply in recent years and investors have increasingly sought yield from equities, most income stocks have become too richly valued, in the managers’ views. Given their focus on absolute valuations, this has reduced the investable universe and subsequently the number of stocks in this portfolio, therefore also increasing stock-specific risk.
