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The best global funds for investment income

BP’s suspension of its dividend following problems in the Gulf of Mexico is the latest blow to investors seeking income in the UK. Here we reveal how to source your dividends from overseas with the aid of Citywire Selection.

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by Nicholas Paler on Jul 13, 2010 at 11:49

BP’s suspension of its dividend following problems in the Gulf of Mexico is the latest blow to investors seeking income in the UK. Here we reveal how to source your dividends from overseas with the aid of Citywire Selection.

Dwindling income from UK

Dividend payments from shares are one of the main reasons people invest in the stock market. Whether you use the bi-annual or quarterly payments from companies as a source of your income or reinvest the dividends to buy more shares, there is no doubt dividends form a crucial part of the total return to be generated from successful stock market investing.

Unfortunately, companies’ ability to pay dividends has come under extreme pressure during the financial crisis and the recession. Dwindling returns in savings rates as interest rates were slashed to 0.5% by the Bank of England may have encouraged individuals to consider braving the stock market in search of a higher income, but that does not mean those precious dividends have been easy to find.

Far from it: first, banks, which had historically been big payers of dividends, cut or scrapped the payments altogether as they sought to recover from the financial crisis. The ensuing recession saw many other companies cut or at the least refrain from increasing their dividend.

However, no one anticipated the problems with BP, which has scrapped three dividend payments scheduled for this year in order to set aside $20 billion for the clean-up and compensation fund arising from the disastrous leak from the Deepwater Horizon right.

The oil giant may be about to cap the leak but its Gulf liabilities will linger over the group for many years. The episode highlights how arguably the UK has become too narrow a market for income investors. Before the dividend suspension BP was the second largest dividend payer in the country, accounting for 9.2% of all payouts made by companies in the FTSE All-Share index, according to figures from Bloomberg. The top 20 stocks in the UK accounted for 70% of all dividends.

Equity income funds

Well run investment funds are the best way for most people to invest in the stock market. The top fund managers can invest your money in a wide range of companies to give you a good return over five years, although this can never be guaranteed.

Over the years a big UK equity income fund sector has developed to serve the needs of income investors. Managers such as Neil Woodford, who runs the Invesco Perpetual Income and Higher Income funds, have delivered excellent long-term returns. However, for reasons identified above, UK equity income funds have been forced into an ever narrower band of stocks prompting investors to search wider afield for dividends.

The result has been a growing interest in global equity income funds which can look for good dividend paying companies from across the world.

The advantages of going global

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14 comments so far. Why not have your say?

Neil Woodford has served many investors well, as have several other managers. The trend now does seem to be towards over seas for income as they grow more sturdy. Nothing is certain so be cautious!

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Global funds are my current choice but they can be volatile also. I see little advantage in UK and US investment due to recent problems that remain unresolved. There is still a danger of another deep dip in my opinion. Resources that have always been there and are now being realised make places like Brazil attractive to me. Whilst unethical, tobaco stocks are steady as a rock since underdeveloped countries will always buy tobacco.

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I recommend elite bloxham global income based in Dublin.

Global funds are very volatile so they are for the long haul.

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we live in an global economy so it makes sense to have global equity income and Newton is an excellent fund. Having said that when the indices move they move in the same direction, i.e if they are red they all are read and vice versa. The secret is to have a balanced portfolio spread over U.K, USA, Europe, global growth, emerging markets, multi-manager funds and ofcourse say circa 10-15 liquid. Good luck and happy hunting.

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I have always wanted to drip feed in to B R I C , Brazil , Russia , India and China. BUT I dont know if there is any funds out there which invest in all 4 ?

rather than me investing in each different fund?

any help from you, CITYWIRE or your readers , please. Thanks

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Allianz BRIC star fund invests 25% in each. Has served me well in the past but not currently invested.

No advice intended

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HK : I have been invested in Allianz BRIC for a few years - i would not recommend - too volatile and has not held onto gains - Aberdeen emerging Markets on the other hand has fared me much better and has limited the downside more than the Allianz fund. Why limit yourself to only BRICs?

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Look at the ETF (Exchange Traded Funds) web page for ETF BRIC and many other Index related Funds

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A consistent high performer, although mainly accumulation, is Aberdeen Asian Smaller Companies Investment Trust. Excellent growth over several years and a 'What Investment' best buy in this sector. Let's face it, this is the decade of the Far East and is where most of the growth will be.

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The Allianz BRIC fund features in Citywire Selection as our pick for investing in the four BRIC countries. The portfolio is fairly evenly split and will tend to have sharper ups and downs than our more diversified global emerging market picks in Citywire Selection.

We have also selected the ishares FTSE BRIC 50. Note that Brazil and China make up around 75% of the exposure.

Jonathan Miller

Head of Research

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Thanks guys , very highly appriciate all your comments , very helpful.

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Individual funds like First State Greater China,Indian Subcontinent I P Latin America and JP Morgan New Europe have much better returns than Allianz RCM BRIC

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Wih the Kent Reliance B.S. / J.C.Flowers posible joint venture on the cards could well breathe some new life into Pibs and holding accounts in the smaller Building Societies. Corporate activitiy usually generates interest in companies involved and I must say I am somewhat surprised at the lack of interest in KRB Pibs.

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Rick Niemeyer

Jul 18, 2010 at 14:12

If you'd rather invest in individual shares instead of a fund, take a look here for a list of high dividend yields:

http://www.ftsedividend.com

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