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This income fund is a best-in-class stock picker
Investors looking for good ways to earn an income from the market and hopefully see the value of their investment rise should put their money in Liontrust Global Dividend (B91RFZ2).
A 2.2% yield is attractive relative to returns you can get from cash in the bank. While there are other funds yielding more than twice that level, the Liontrust product should be viewed from a total return perspective which is income and capital gains.
On that basis, its performance has been very good, achieving a top quartile ranking for the past one, three and five years, according to FE Fundinfo. In the past five years it has returned 88.2% versus 60.5% from the Unit Trust Global Equity Income sector. The fund also has a five-star rating from Morningstar.
Liontrust Global Dividend offers exposure to a carefully selected group of best-in-class companies set to extend their market leadership positions as economies recover from the pandemic.
The investment philosophy at the heart of the fund posits that innovation and disruption will be the most important drivers of stocks going forward.
Co-manager Storm Uru argues that a focus on both dividend and capital growth delivers a superior level of income and total return than chasing yield alone.
‘We are finding value across a number of names which we just haven’t seen for many, many years,’ says Uru.
Which version do I buy?
Investors looking to collect dividend payments in cash should buy the ‘Inc’ version of the fund, which has the code B91RFZ2. The alternative is to buy the ‘Acc’ version – the code is B9225P6 – which essentially reinvests dividends for you. The fund’s ongoing charge is 0.9%.
BEST IDEAS PORTFOLIO
Liontrust Global Dividend is a concentrated portfolio of between 30 and 40 companies, 42 at last count. It focuses on market leaders, meaning the fund has a bias towards mega cap and large cap stocks.
The portfolio has a high active share, which means it looks very different to the benchmark, and is also reassuringly diversified in terms of industry sector and geography.
With the global economy becoming ever more innovative and disruptive, the adoption of major new products is speeding up, which in turn is leading to faster corporate destruction. Companies are fading away faster than ever before; in fact, the average lifespan of an S&P 500 company has fallen from 60 years in 1960 to 20 years today.
This demonstrates why it is so important to invest in corporate innovators that futureproof their businesses by spending significant percentages of turnover on research and development and deliver higher share price returns as a result.
READY TO ROAR
There are two types of innovators in Liontrust Global Dividend – ‘Global Disruptors’ and ‘Global Leaders’.
As of 26 February 2021, the top 10 included the likes of acquisitive, Toronto-listed Constellation Software, ‘one of the most amazing compounding investments that’s been around in the markets’ according to Uru.
The portfolio’s largest positions also feature technology group Microsoft, investment bank JPMorgan Chase and Estee Lauder, the cosmetics maker proving adept at selling direct to consumer.
Other holdings include healthcare provider UnitedHealth; Costco, the membership-only retail chain which has grown its dividend by 20% a year over the last five years and started paying special dividends; as well as innovative Spanish travel technology company Amadeus.
Recent additions to Liontrust Global Dividend include electronic marketplace operator Tradeweb and aircraft maker Boeing. ‘We look for idiosyncratic events and we look to make investments in these companies that are going through temporary strife,’ says Uru of Boeing, which had $26 billion cash on its balance sheet at last count. ‘That is a huge amount of cash for a rainy day,’ he adds.
According to the fund manager, Boeing has ‘no problems with liquidity, which was a major concern, and there’s going to be a lot of value unlocked over the next three to five years.’
As of 31 December 2020, Liontrust Global Dividend had dividend cover of 2.1 times, comfortably ahead of competitor funds and the IA Global Equity Income sector average of 1.4.
‘Most of the companies (in the portfolio) are net cash or capital light,’ explains Uru, ‘so they don’t require a lot of capital intensity to grow, have very strong barriers to entry and are investing a lot in R&D. What we find is that cash drops to the bottom line and they return it to us via payouts.’