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GUINNESS GLOBAL EQUITY INCOME FUND: The £2bn fund that’s designed for tricky times
As its name implies, investment fund Guinness Global Equity Income scours the world in search of companies that pay shareholders attractive dividends over the long term.
It’s an investment approach that was tested during the pandemic in 2020 as many businesses suspended dividend payments – and it is being examined again as the world economy teeters on the edge of recession. Yet it is proving remarkably resilient.
Over the past three years, the £2billion fund has registered total returns – income plus capital – of 38 per cent, ahead of the average for its peer group (20 per cent). Over the past year, it has also outperformed – registering gains of 9 per cent, compared to the average for the global equity income sector of 1 per cent.
The fund is managed by Ian Mortimer and Matthew Page, employees of asset manager Guinness Global Investors. Page describes it as ‘ideal for uncertain times – and that’s the world we are living in at the moment’. He adds: ‘It’s a portfolio built to withstand shocks.’
Currently, it comprises 35 stocks, companies that in terms of market capitalisation are all larger than $1billion (£815million). With the smallest being Australian- listed Sonic Healthcare (£9billion) and the largest Microsoft (£2.3trillion), its holdings tend to be familiar names. They include the likes of tobacco giants Imperial Brands and British American Tobacco; and consumer brands such as Johnson & Johnson, Diageo and PepsiCo.
What links these companies is their ability to generate profits through thick and thin – profits which can then be part used to fund growing dividend payments. Page says: ‘It’s all about identifying companies that are best at using their capital to produce persistently high levels of profits. This in turn allows them to reward shareholders with a stream of dividends.’
It’s a strategy based on analysis of company accounts going back ten years – and it results in a portfolio skewed towards companies that are market leaders. They tend to have pricing power – that is, the scope to push up prices without harming sales or impacting on profits. An important advantage given rampaging global inflation.
The fund always holds 35 companies. Some three times a year, the holdings are all rebalanced back to 2.7 per cent, but Page says good performers are ‘left to run’ for a while. Currently, the biggest position is in BAT at four per cent. ‘If one individual holding gets to 4.3 per cent, we will drive the position down,’ he says. Page adds: ‘We’re focused on applying our investment process. It works and we don’t veer from it.’
Companies are held for a minimum three to five years, resulting in a portfolio that changes little. The last alteration was made last year when Chinese sports equipment company Anta was sold and a stake was taken in US semi-conductor manufacturer Texas Instruments. ‘We made good profits from Anta,’ says Page, ‘and felt Texas offered us strong dividend growth.’
The fund has a good income record. Someone who invested £100 at the time of the fund’s launch in late 2010 would have received a growing annual dividend every year bar 2020 when it decreased from £5.40 to £5.37.
This year, 26 holdings have already announced details of their 2022 dividends. Twenty three have increased dividends – on average by 8.5 per cent – while three have kept them at 2021 levels. The fund’s shares trade at around £21.85 and the annual charges total 0.8 per cent. Although income is modest at just above two per cent, it’s growing which is reassuring for investors.