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Five income funds from around the world for dividend-seeking ISA investors

14 March 2022

Tilney Bestinvest’s Jason Hollands names his top picks across several major asset classes.

By Jonathan Jones,

Editor, Trustnet

Investing for income during the height of the pandemic was a real struggle, but recently it has become much easier.

In early 2020, companies reduced, scrapped or suspended payouts to deal with lockdowns and the economic grounding that resulted.

Yet now in 2022, bumper payouts from miners and banks have made life easier. These stocks have all rallied in share price terms as well, giving investors a double benefit.

According to research released by Janus Henderson in January, global dividends will exceed pre-pandemic levels in 2022 as profits recover.

Jason Hollands, managing director of Bestinvest, said that income is often more reliable (although not fully guaranteed) than share price gains and is a good starting point for investors.

During the growth boom of the past decade, many investors have overlooked dividend-paying companies, but with tech stocks and other growth names under pressure in 2022, the “allure” of a regular payout may appeal.

Although the UK is viewed as the dominant market for dividend-paying companies, “it is certainly not the only game in town when it comes to income”, Hollands said.

However, he added: “It might be one of the best, and certainly with its old economy stocks in favour at the moment, it is proving more resilient than the other leading western stock markets. So, for good reason, the first of our global ISA income fund picks is a domestic one.”

Hollands named TM Redwheel UK Equity Income as his first choice. The fund has held up well over the past three years, making 16.1%, while the FTSE All Share index and IA UK Equity Income sector have gone up 12.6% and 10.7%, respectively.

Total return of fund vs sector and benchmark over 3yrs

 

Source: FE Analytics

“This fund – managed by boutique Redwheel (formerly RWC Partners) pair Ian Lance and Nick Purves – has a ‘value’ approach of targeting cheap stocks which are typically larger companies,” he said.

Top holdings include value stalwarts Legal & General and Dettol maker Reckitt Benckiser, while there are also some quality-growth companies that may surprise investors, such as Revolution Beauty Group, which produces vegan lipsticks and skincare products.

For investors that want a broader approach to income, Hollands suggested the TB Evenlode Global Income fund may be a strong choice.

The fund is managed in the same way as the UK version, buying quality-growth stocks that offer high return on capital and generate strong free cashflows.

“Global funds have proved very popular with investors in recent years, but many are heavily exposed to the US market, which has ballooned to over 68% of the MSCI World Index,” Hollands said.

Although the fund has 37.8% in the US, its largest weighting is to Europe (38.2%). Current holdings include US consumer firm Proctor & Gamble – which owns brands ranging from Pampers to Old Spice – and Swiss pharmaceutical giant Roche. The managers favour companies delivering sustainable real dividend growth rather than focusing purely on high yielders.

Unfortunately for investors, neither UK nor Europe has performed well in 2022, with the fund down 10.7% year-to-date, but it has a strong track record, beating its average peer in the previous four calendar years.

It has made 45.5% since launch, slightly behind the MSCI World but 15 percentage points ahead of its average peer.

Total return of fund vs sector and benchmark since launch

 

Source: FE Analytics

Turning to regional picks, in Europe Hollands suggested the BlackRock Continental European Income portfolio. Europe is another market like the UK that is known for higher-yielding companies, but there are fewer dedicated funds in the space.

“This is one such fund, and its results suggest it’s one of the best. The fund has been managed since launch in 2011 by Andreas Zoellinger, who has spent almost his entire career at BlackRock. In 2021 he was joined as co-manager by Brian Hall,” he said.

“As well as a high yield, they target dividend growth and long-term outperformance, and since launch have delivered all three,” Hollands noted. The fund has made 152.3% since launch, beating the IA Europe ex UK sector and FTSE Developed Europe ex UK index.

Total return of fund vs sector and benchmark since launch

 

Source: FE Analytics

Turning to the East, Japan is an up-and-coming area for dividends. Although the market hasn’t typically been associated with income, it has grown in popularity in recent years as companies have started to focus on shareholder interests.

Jupiter Japan Income invests predominantly in Japanese equities, but has the freedom to invest 30% of its portfolio elsewhere.

“The investment process focuses on finding companies with the ability and willingness to grow dividends and the fund managers have stressed they don’t aim to maximise yield, but rather are willing to invest in high-growth areas as long as they offer some yield,” Hollands said.

“This fund has provided consistent outperformance relative to other Japanese higher income funds. Since inception it has outperformed the MSCI Japan index 87% of the time.”

Last up is the only investment trust on the list – Schroder Oriental Income. The trust, managed by Richard Sennitt since 2020, was run by Matthew Dobbs before he retired.

The trust has delivered a growing dividend every year since it launched in 2005 and is currently yielding 4%, with distributions paid quarterly.

While it predominantly invests in equities, it also has the flexibility to invest in bonds and preference shares. The portfolio invests across Asia, including Taiwan (25%), Australia (17%), Singapore (15%) and Hong Kong (13%).

Fund Sector Fund size  Fund managers (s) Yield OCF
BlackRock Continental European Income IA Europe Excluding UK £1,532m Andreas Zoellinger, Brian Hall 3.3% 0.92%
Jupiter Japan Income IA Japan £893m Dan Carter, Mitesh Patel 2.3% 0.98%
Schroder Oriental Income IT Asia Pacific Equity Income £684m Richard Sennitt 4.0% 0.85%
TB Evenlode Global Income IA Global Equity Income £1,387m Ben Peters, Chris Elliott 2.1% 0.85%
TM Redwheel UK Equity Income IA UK Equity Income £457m Ian Lance, Nick Purves 3.10% 0.78%

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.