Five equity income picks from across the globe
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Equity income investing for UK based investors has historically been limited to UK Equity Income Funds, a global market leader in terms of the available yield. Whilst this sector remains an important source of potential capital growth and income it is no longer the only equity income game in town. Global equity income and regional equity income funds have now become established asset choices in their own right. At City Asset Management we continue to use UK equity income funds, although only selectively, with global and ex-UK regional equity income funds increasing in dominance. I have highlighted a mix of our current preferred choices within the equity income space.
Starting with traditional UK equity income investing, although our choices are far from traditional, the Liontrust Macro UK Equity Fund (formerly the Walker Crips UK Equity Income Fund) differentiates itself by taking strong macroeconomic views when determining portfolio construction. As an example the management team are structurally bearish on the UK domestic economy and have therefore positioned their portfolio to an overseas earnings position.
The second UK equity Income fund is the River & Mercantile UK Equity Income Fund which prides itself on taking a bottom up contrarian view, whilst aiming for less volatility than the index and peer group. Managed against the FTSE All Share (allowing for Small Cap investment) there is a disciplined investment process based around R&M’s PVT (Potential, Value & Timing) approach. The fund also benefits from its modest size.
Newton Asian Income attempts to generate income and long term capital growth predominantly through investment in equities listed in the Asia Pacific ex Japan region. It has been managed by Jason Pidcock since inception in 2005, and utilises Newton’s thematic approach to investing. The fund has a focus on income investing, which has produced a historic yield in excess of 5%.
First State Global Listed Infrastructure is not strictly an equity income fund; it invests within global listed infrastructure equities. Although it displays the characteristics of equity income investing, it derives its added value from specialist investing. These equities provide a high and sustainable yield due to their business models and are considered defensive when compared with the wider market.
Veritas Global Equity Income is managed on a thematic basis, a common approach across all of the team’s global mandates. Taking active views in the picking of themes, such as “dependable compounders”, means the benchmark bears little importance in constructing the portfolio. The managers are naturally cautious in their approach which can lead to some relative underperformance in momentum led rallies; however the historic yield is very attractive.
The above funds highlight some of the choices now available to investors seeking the potential capital growth on offer from equity markets, whilst enjoying an attractive yield. It should be noted that the number of equity income offerings with Global Emerging Markets, Europe ex-UK and the US are also growing.
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James Calder is research director at City Asset Management.
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