Casting the net wide for global dividends

Manager of the Artemis Global Income Fund, Jacob de Tusch-Lec, aims to find better-value stocks in his search for global dividends.

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  1. Rob Morgan

It has been a tough couple of years for many global equity income funds. Some of the areas they traditionally invest in, such as utilities, tobacco, telecoms and energy have struggled. Meanwhile, sectors such as technology have enjoyed strong returns but many stocks are less attractive from an income perspective.

One global equity fund that offers a more pragmatic, well-rounded approach is Artemis Global Income managed by Jacob de Tusch-Lec, though it too has found it difficult to keep up with broader, growth-orientated rivals over the past year – having previously done a decent job keeping up.

Mr de Tusch-Lec constructs his portfolio using three main types of stocks: “Quality yield”, which comprises large, stable stocks in sectors such as utilities; “cyclical yield”, companies whose earnings are strongly linked to the performance of the economy, thus producing a lumpy dividend stream albeit one that hopefully rises strongly over time; and finally “special situations”, firms that are out of favour with investors but offer the prospect of recovery.

The latter two categories were chiefly to blame for recent underperformance. The fund’s skew towards unfashionable stocks trading on modest valuations as opposed to more expensive and popular areas (such as consumer staples and technology companies) was not rewarded.  For instance, Japanese industrial company Tokai Carbon fell by 40% in the fourth quarter of 2019 despite strongly growing revenues, cash flows and dividends. The energy-related stocks held, including Borr Drilling and Hess, were also notable detractors. Backing stocks like these that are more linked to the economic cycle has been costly in the shorter term but the manager is sticking to his guns.

Comparisons of the fund versus its global equities benchmark should also be seen in the context of its geographical exposure. Like most income funds, it will exhibit a relative underweight in US stocks (which have strongly outperformed versus the rest of the developed world in the past couple of years) and tends to be overweight in Europe where there are more companies with decent dividend yields.

The portfolio presently remains tilted to the more economically sensitive ‘cyclical value’ areas. Mr de Tusch-Lec believes that in aggregate these trade at a 25% discount to the market with similar growth and higher cash returns. The fund has significant exposure to materials, telecoms, banks, energy and autos and the manager retains a high conviction in the current portfolio.

This positioning would normally be expected to offer relatively little protection against falling markets, however if markets fall due to rising interest rate expectations and bond yields then it is the more defensive sectors where the fund is relatively light that would likely underperform.

Past performance table: Artemis Global Income Fund


Past performance is not a reliable indicator of future returns. Figures are shown on a % total return basis, bid to bid price with net income reinvested; Source: FE Analytics.

Our view

With a longer term track record of strong returns and growing income we continue to favour this fund for differentiated exposure to international dividend-paying shares. The recent dip in relative performance is disappointing but when we demand true active management then we shouldn’t be unnerved when it occasionally results in periods of divergences from peers. The more eclectic approach of the fund offers some variety and diversification to an income portfolio, and we continue to admire the disciplined philosophy of the manager.

One previous concern, the fund’s size, a bi-product of its previous strong performance and popularity, has ameliorated as the fund has experienced outflows. This may mean the manager’s opportunity set has become slightly larger once more and the fund remains part of our Foundation Fundlist of our preferred investments.

Past performance is not a reliable guide to future returns. This website is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. Investment decisions in fund and other collective investments should only be made after reading the Key Investor Information Document or Key Information Document, Supplementary Information Document and Prospectus. If you are unsure of the suitability of your investment please seek professional advice.

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