GUINNESS GLOBAL EQUITY INCOME FUND: A £2 billion fund designed for tough times
As the name suggests, the Guinness Global Equity Income investment fund scours the world for companies that pay shareholders attractive dividends over the long term.
It’s an investment approach that was tested during the 2020 pandemic, when many businesses suspended dividend payments, and is being revisited as the global economy teeters on the brink of recession. However, it turns out to be remarkably resilient.
Over the past three years, the £2bn fund has registered a total return – income plus capital – of 38 per cent, above the peer group average of 20 per cent. It has also outperformed over the past year, growing 9 percent, compared with the global sector average for equity returns of 1 percent.
The fund is managed by Ian Mortimer and Matthew Page of asset management firm Guinness Global Investors. Page describes it as “perfect for uncertain times – and that’s the world we live in at the moment”. He adds: “This is a portfolio built to withstand shocks.”
It currently includes 35 stocks in companies with a market capitalization of more than $1bn (£815m). The smallest is Australian-listed Sonic Healthcare (£9 billion) and the largest is Microsoft (£2.3 trillion). Among them are tobacco giants Imperial Brands and British American Tobacco; and consumer brands such as Johnson & Johnson, Diageo and PepsiCo.
What ties these companies together is their ability to generate income through both the bill and the thin — income that can then be used in part to fund growing dividend payments. Page says: “It’s all about identifying the companies that are making the best use of their capital to generate consistently high levels of returns. This in turn allows them to reward shareholders with a stream of dividends.”
This is a strategy based on an analysis of companies’ accounts from ten years ago, and results in the portfolio being skewed towards companies that are market leaders. They tend to have pricing power—that is, the ability to raise prices without hurting sales and profits. An important advantage given the rampant global inflation.
There are always 35 companies in the fund. About three times a year, all holdings recover to 2.7 percent, but Page says the good performers are “left to work” for a while. Currently, the largest position in BAT is four percent. “If one individual holding reaches 4.3 percent, we will reduce the position,” he says. Page adds: “We are focused on applying our investment process. It’s working, and we’re not backing down from it.”
Companies are held for at least three to five years, resulting in little change in the portfolio. The latest change was made last year, when the Chinese sports equipment company Anta was sold and received a stake in the American semiconductor manufacturer Texas Instruments. “We got good returns from Anta,” Page says, “and felt Texas offered us strong dividend growth.”
The fund has a good income. Someone who invested £100 when the fund launched in late 2010 would have received a rising annual dividend every year, except in 2020 when it fell from £5.40 to £5.37.
This year, 26 holdings have already announced details of their 2022 dividends. Twenty-three increased dividends – by an average of 8.5 percent – while three kept them at their 2021 level. The fund’s share price is around £21.85 and annual fees are 0.8 per cent. Although the yield is modest at just over two percent, it is growing, reassuring investors.
GUINNESS GLOBAL INCOME: £2 billion fund for tough times
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