Looking beyond the usual suspects 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 in relative terms. Some of the areas they traditionally invest in, such as utilities, telecoms and healthcare have struggled. 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 pragmatic, well-rounded approach is Artemis Global Income managed by Jacob de Tusch-Lec.  It has been able to keep up with the MSCI World index of global stocks and comes with a strong longer term record too – although past performance is not a guide to the future.

The level of performance is unusual for a ‘value’-minded manager in a backdrop that has broadly favoured growth investors. We attribute this to the manager correctly reading the economic landscape and adjusting his portfolio accordingly, as well as good stock selection. A willingness to include lesser-known stocks including small and medium-sized businesses and more economically-sensitive areas with less predictable earnings has also helped.

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 “value yield”, firms that are out of favour with investors but offer the prospect of recovery.

The manager presently has his lowest ever weight to quality yield stocks based on the view that President Donald Trump’s tax cuts have boosted the US economy and will extend the current elongated economic cycle for another year or two. He continues to avoid many traditional equity income sectors such as tobacco and consumer staples, which he views as too expensive and whose growth he says is mainly fuelled by increasing debt. Instead he favours beneficiaries of a continuing economic boom including banks such as Citigroup, Bank of America and Danske Bank as well as General Motors and shipping firm Maersk.

The fund is tilted towards Europe, which has been an impediment to performance this year as the region’s markets have lagged. An 11% exposure to Italy in particular was costly amidst the political turmoil in the country, but the more defensive nature of these holdings – chiefly telecoms and companies owning broadcasting towers – meant the impact was fairly small. Meanwhile, steel tube manufacturer Tenaris or agricultural equipment maker CNH may be listed in Italy, but have limited exposure to the Italian market and have been relatively unaffected. The fund owns no Italian financials, which have been at the epicentre of volatility.

While not being and out-and-out value investor, Mr de Tusch-Lec is currently seeking to avoid what he calls the “three C's”: Crowded trades (stocks that are hyped up and hence expensive); Credit (he doesn't like companies with excessive borrowing); and Computers (stocks most prominent in ETFs - exchange traded funds - whose shares are picked and traded by computer algorithms. Bypassing these stocks, he believes, will shelter the fund from the worst of market volatility if investor sentiment weakens.

Energy stocks, for some time a drag on fund performance, have started to perform better in recent months and catch up with the rise in crude oil price. Mr de Tusch-Lec remains keen on the sector, reasoning that a period of financial discipline and underinvestment has limited the industry's capacity to increase supply to meet demand. He feels a similar situation is unfolding in certain parts of the mining sector, such as copper, where the fund also has some exposure.

Our view

With a track record of strong returns and growing income approaching eight years we continue to favour this fund for exposure to international dividend-paying shares. The more eclectic approach offers some variety and diversification to an income portfolio, and we admire the disciplined and pragmatic philosophy of the manager.

Our one concern is the fund’s size, a bi-product of its strong performance and popularity. A distinguishing feature is its ability to invest outside larger companies and with more that £4bn now under management the ability of the manager to build meaningful positions in smaller firms may start to be affected. We will continue to monitor this, but for now the fund remains part of our Foundation Fundlist of our preferred investments.

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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