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Lipper’s Jake Moeller examines how European fund-of-funds managers are gaining their exposure to global equity income funds in December 2014.

Global equity income funds are by no means a recent product initiative. Martin Currie Global Equity Income, the sector’s oldest fund, was launched in September 1983 followed by Baillie Gifford Global Income Growth in October 1984. Today, there are now over 1,000 funds (with respective share classes included) and investment trusts registered for sale in Europe within the Lipper Global Equity Income sector. Such has been the demand from investors for yield in a record period of ongoing low interest rates that a staggering 89% of all the funds and trusts in this sector have been launched since January 2007.

It is often difficult for fund-of-funds managers where they have their own geographical asset allocation regimes, to use funds with a broad regional mandate. However, the increasing popularity of broadly diversified mixed-asset funds and compelling long-term performance (only the U.S. equity market has beaten the sector over the last seven years – refer to Table 1.) has seen buyers increasingly comfortable slotting these funds into their portfolios.

Table 1. Performance of the Lipper Global Equity Income Funds Sector Versus Comparable Sectors, Seven Years to December 31, 2014 (in Euros)
2015 02 24 JM01 580  
Source: Lipper for Investment Management

The clear winner in this category, with 86 combined buyers, has been M&G Global Dividend fund which steals the two top slots. Additionally, (not in the table) there are two buyers of the M&G Global Dividend A GBP Inc share class who have invested a massive €750 million. In terms of assets under management, this fund represents over 40% of the total assets purchased in the sector in December 2014. Interestingly, the M&G fund does not have the best one-year performance or yield.  Lyxor UCITS ETF SG Global Quality Income NTR D-EUR, with 18% performance and 6.3% yield, is a stand out, as is Artemis Global Income Inst Acc (21.0% performance and 5.0% yield).

Other funds which are well represented in the sector include Veritas Global Equity Income fund which has collected nearly 10% of assets in the sector for the month and Newton Global Higher Income which amassed 5% of assets.

Table 2. List of Global Equity Income Funds Ranked by European Buyer Popularity, December 2014
2015 02 24 JM02
Source: Lipper FundFile

The preference in this sector is for actively managed options but three passive options appear in the buyers’ top 25 list. Interestingly, all of these passive options exhibit strong performance and yields for the year against their active counterparts as well as against Lyxor (mentioned above), db x-trackers STOXX Gl Select Div 100 UCITS ETF 1D with one-year performance of 22.0% and a yield of 4.0% has justified its position as the sixth most popular fund in the sector.

Despite the plethora of funds available in this sector, it seems European buyers are very particular. Only 89 individual fund options were used in December 2014, and of these only 9 were passive options.

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Jake Moeller

Jake joined Thomson Reuters Lipper in 2013 as Head of UK & Ireland Research. He has over eighteen years experience as an expert in mutual fund research, fund-of-funds portfolio management and asset allocation strategies. He spent six years managing the fund-of-funds suite and guided fund platform at AIG and has been a mutual fund research specialist for Lloyds Banking Group, Towry and the Commonwealth Bank of Australia. Jake is a Chartered Member of the Chartered Institute of Securities & Investment (CISI) and a Senior Fellow of the Financial Services Institute of Australasia (Finsia).

Website: lipperalpha.financial.thomsonreuters.com/contributor/jake-moeller/

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