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February 23, 2015

Monday Morning Memo: Popular Global Equity Income Funds in Europe

by Jake Moeller.

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

Reuters/ Juan Carlos Ulate

Reuters/ Juan Carlos Ulate

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, 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 to utilise funds with a broad regional mandate where they have their own geographical asset allocation regimes. 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 7 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 Sector vs Comparable Sectors – 7 Years to December 31, 2014 (in Euro).

Source: Lipper for Investment Management

Source: Lipper for Investment Management

The clear winner in this category has been M&G Global Dividend fund which steals the top two slots with 86 combined buyers. Additionally (not in the table) there are 2 buyers of the M&G Global Dividend A GBP Inc share class who have invested a massive €750m. In AUM terms, 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 1-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% performance and 5% yield).

Other funds which are well represented 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).

Source: Lipper FundFile

Source: Lipper FundFile

The preference for this sector is in actively managed options but 3 passive options appear in the buyers’ list top 25. Interestingly, all of these passive options exhibit strong performance and yields for the year against their active counterparts as well as Lyxor (mentioned above), db x-trackers STOXX Gl Select Div 100 UCITS ETF 1D with 1-year performance of 22% and a yield of 4% has justified its position as the 6th most popular fund in the sector.

Despite the plethora of funds available in this sector, European buyers it seems 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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