Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Guard against uncertainty with Guinness Global Equity Income
Concerns over the spread of the Delta variant and its potential impact on global growth have hit the stock market’s reopening names at a time when investors are also fretting over rising inflation, meaning the outlook for equity markets is clouded at the minute.
As such, Shares believes this is a savvy time to invest in a fund offering exposure to high quality, dividend-paying companies with the ability to protect your portfolio from both inflation and equity market downswings.
Besides delivering a gradual but powerful contribution to long-term returns, dividends can help to counter the effects of market falls and the so-called ‘cruellest tax’. And should the outlook for the global economy and equity markets deteriorate, we would expect investors to pay up to access quality names that can deliver growth whilst generating cash that can be returned to shareholders.
One vehicle Shares has a positive stance on is Guinness Global Equity Income (BVYPNY2), a concentrated portfolio of good quality, attractively valued companies, which offer a moderate dividend yield and good potential for dividend growth.
This stellar performer is managed by Ian Mortimer and Matthew Page and invests in global equities with sustainable income growth. According to Trustnet, the fund is the fifth best performer among the 57 funds in the IA Global Equity Income sector on a five year view with a return of 74.1%, while Morningstar data shows the fund has delivered benchmark-beating 10 year annualised returns of 11.64%.
Drilling down a bit more into the strategy, the managers seek out companies with at least 10 years of persistent high cash flow return on capital every year, strong balance sheets and the robustness to withstand economic shocks while delivering a sustainable, growing dividend.
Mortimer and Page insist dividend payers outperform in the long term, and dividend growers even more so, and are fans of the ability of dividend payers to protect against inflation over the long term.
Despite the focus on quality, Guinness Global Equity Income’s performance has kept up with the MSCI World Index benchmark this year, despite the so-called ‘reflation trade’ which has boosted economically-sensitive sectors such as energy, materials and banks.
And we think the fund is well positioned going forwards since it combines quality and exposure to more defensive/consumer staple names which have underperformed on a relative basis year-to-date and offer investors a sustainable source of income.
It is important to note that this low turnover fund targets a moderate dividend yield, Page and Mortimer don’t screen for high yielding stocks, and its proven strategy helped the fund to weather the Covid dividend storm well.
During 2020, 28 companies in the portfolio grew their dividends, six kept their payouts flat, just one company cut the dividend and the fund saw no suspensions or cancellations. The fund’s dividend for 2020 fell by 0.6% to £5.37, versus a 12.3% dividend decline for the MSCI World Index. And in 2021 to date, dividends declared by the underlying holdings have generally surprised to the upside.
Typically, Mortimer and Page run 35 equally weighted positions, which reduces stock specific risk and instils a strong sell discipline to boot. Another advantage of an equally weighted portfolio is that potentially, it gives the fund more of a growth bias; an equally weighted portfolio naturally gives greater weight to small and mid-caps relative to a broad index where big caps dominate.
Guinness Global Equity Income continues to maintain a fairly even balance between quality defensive companies, such as consumer staples and healthcare stocks, and quality cyclical/growth companies including industrials, (non-bank) financials, consumer discretionary and information technology stocks.
The top 10 holdings at the end of June included the likes of China’s Anta Sports Products, the sportwear company behind brands including Anta, Fila and KingKow, as well as tobacco manufacturer Imperial Brands (IMB), power management company Eaton, payroll processor Paychex, tech titan Microsoft and also the German stock exchange Deutsche Boerse.
No changes were made to the portfolio in the second quarter of 2021, during which the fund’s top five performers were led by Anta, Novo Nordisk, Otis Worldwide, BlackRock and Roche, more than compensating for disappointing performances from the likes of Henkel, Reckitt Benckiser (RKT), Johnson & Johnson, British American Tobacco (BATS) and Procter & Gamble.