The impact of these developments means that in the past 15 years the number of companies listed within the FTSE World Index yielding more than 3 per cent has risen from about 5 per cent to nearly 30 per cent.
A core strategy
This is now an established area for UK investors. The Investment Association (IA) global equity income sector came into force at the beginning of 2012, but this disguises the fact that numerous funds in this area are well established with the longest running funds in the sector having records in excess of 10 years.
As the IA recognised, this had become an established area of investment and not a short-term fad, as some investors wrongly believed it would be following the first few launches. To meet sector requirements, 80 per cent of the fund must be invested in global equities, diversified by geographic regions. The income criteria for funds must produce an annual income yield 110 per cent higher than the MSCI World Index yield.
An increasing number of funds are tapping into the income story globally and/or regionally. We have witnessed several high-profile launches in the past five years for funds looking to exploit the hunt for yield. The sector has expanded from an initial 18 members in 2012 to there now being 51 funds, with most leading providers providing a fund as part of their range.
Of the funds in the sector, the Dublin-based Veritas fund was first to launch early in 2005, but the pioneer as far as providing access to UK retail investors is Newton, which launched its Global Higher Income fund back in November 2005. This was the first UK domiciled global equity income fund and has been a resounding success. It is now easily the largest fund in the sector, with more than £5.5bn invested.
Where they invest
The broadly diversified global equity income funds largely tend to be focused towards developed markets where there is an established culture of companies paying dividends. Whitechurch Securities Wealth Managers uses global income funds as core holdings for income and growth investors.
Providing managers are able to find attractive dividend stocks then I am happy that they have a substantial weighting in US and Europe as these are the major overseas regions. However, I would expect that the managers should also be seeking opportunities further afield and I look for funds that are well diversified geographically.
One thing I look for when investing in global equity income funds is that they have a low exposure to UK shares. Most investors use these funds to diversify their UK exposure so it is important that they are largely weighted towards overseas markets. We do not want to replicate our UK equity income exposure.
