The question ‘why income?’ has two obvious answers. We’re living longer, and real returns from bank accounts are negative. Although interest rates in the US are no longer falling, sluggish growth in Europe and uncertainty in the UK means there is little scope for savings rates to rise from their historic lows. So the search for reliable sources of income is pressing.
Equity income funds seek to deliver capital growth and a rising income by investing in companies with high dividends. Until recently, most funds of this type tended to focus on the UK stock market. That is because, in the past, British companies tended to offer far higher dividends than their overseas counterparts. There are drawbacks: a large proportion of UK dividends come from just a few companies, making income-seeking investors dependent on the fortunes of a narrow group of sectors and stocks. Investing for income globally offers valuable diversification.
And the opportunities on offer outside the UK continue to expand. Recent years have seen the dividend payments available in overseas markets improving dramatically. Companies globally have realised that investors value their dividends as much as they do the potential for capital gain and have adjusted their payout strategies accordingly.
According to Capita’s UK Dividend Monitor, dividend pay-outs from UK companies for 2016 are forecast to reach £76.9 billion, with special dividends adding £5.6 billion to this total 1
. Sterling’s fall since Brexit has boosted dividends in the UK this year, but more difficult times may lie ahead 2
Of the world’s 2000 biggest public companies, just 92 are based in the UK 3
. For more choice and greater diversification, the prudent investor has to look globally. The Artemis Global Income Fund
hunts down sources of sustainable and growing income wherever they are found. It does this by combining economic analysis with painstaking company research. Its approach – particularly its focus on the free cash-flows that underpin dividend payments – has much in common with the process that has served the Artemis (UK) Income Fund so well for many years.
Where to find income?
European stocks are out of fashion. In part, that’s because investors are (understandably) worried about the European economy. But that they are so deeply out of favour – and so cheap – attracts us. They tend to be far more attractively valued than the US stocks favoured by some global income funds. They also tend to pay more attractive dividend yields. That the European Central Bank seems likely to continue loosening monetary policy – driving down yields on governments bonds – should encourage Europe’s income-seeking investors to buy equities.
Like Europe, value stocks (companies whose shares are less expensive, relative to their earnings, than the average stock) are unfashionable and have underperformed the wider market since the global financial crisis. They tend to be in industries which are out of favour, for example mining, energy and the manufacturing of industrial ‘widgets’. Their profits tend to be more volatile than those of, say, consumer staples companies, and their fortunes depend on the health of the wider economy. But we are increasingly attracted to them by their modest valuations. Value stocks also have a compelling record: they have outperformed the wider market over a period of more than a century, so we think it unlikely their recent unpopularity will last.
Artemis Global Income Fund
The Artemis Global Income Fund
allows its unit-holders to benefit from the prospects for dividend growth in 26 countries and 16 different currencies 4
. It has a relatively small exposure to the UK. This makes it a good option for investors looking for a complementary fund to sit alongside existing holdings in a UK equity income fund.
Managed by Jacob de Tusch-Lec, the fund aims to offer investors a good, steady and rising income, as well as prospects for capital gain, from an eclectic portfolio of dividend-paying companies around the world.
Looking ahead, given the continued uncertainties facing the global economy, the fund persists with its cautious, balanced approach, tempering its enthusiasm for value with holdings in a number of more defensive stocks. Jacob seeks to ensure that the fund will be resilient under a range of macroeconomic scenarios.
1 Capita UK Dividend Monitor
2 Top 20 FTSE 350 Dividend Paying Stocks
Source: Morningstar Direct 2016
3 The World's Largest Companies 2016
Source: Forbes 2016
Source: Artemis. Yield quoted is the historic class I distribution yield as at 29 July 2016.
Citywire rating: source and copyright Citywire. Jacob de Tusch-Lec is rated by Citywire for his risk-adjusted performance for the three years to 29 July 2016.
To ensure you understand whether this fund is suitable for you, please read the Key Investor Information Document, which is available, along with the fund’s Prospectus, from artemis.co.uk.
The value of any investment, and any income from it, can rise and fall with movements in stock markets, currencies and interest rates. These can move irrationally and can be affected unpredictably by diverse factors, including political and economic events. This could mean that you won’t get back the amount you originally invested.
The fund’s past performance should not be considered a guide to future returns.
The fund may invest in emerging markets, which can involve greater risk than investing in developed markets. In particular, more volatility (sharper rises and falls in unit/share prices) can be expected.
The fund may invest in the shares of small and medium-sized companies. Shares in smaller companies carry more risk than larger, more established companies because they are often more volatile and, under some circumstances, harder to sell. In addition, information for reliably determining the value of smaller companies – and the risks that owning them entails – can be harder to come by.
Because one of the key objectives of the fund is to provide income, the annual management charge is taken from capital rather than income. This can reduce the potential for capital growth.
The historic yield reflects distribution payments declared by the fund over the previous year as a percentage of its mid-market unit/share price. It does not include any preliminary charge. Investors may be subject to tax on the distribution payments that they receive.
Any research and analysis in this communication has been obtained by Artemis for its own use. Although this communication is based on sources of information that Artemis believes to be reliable, no guarantee is given as to its accuracy or completeness.
Any forward-looking statements are based on Artemis’ current expectations and projections and are subject to change without notice.
Issued by Artemis Fund Managers Ltd which is authorised and regulated by the Financial Conduct Authority.
Important Information: We do not give investment advice so you will need to decide if an investment is suitable for you. Before investing in a fund, please read the Key Investor Information Document and Prospectus, and our Terms and Conditions. If you are unsure whether to invest, you should contact a financial adviser.
The views and opinions contained herein are third party and may not necessarily represent views expressed or reflected by Willis Owen.