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Who has resisted the great equity income reversal?
by Robert St George on Jun 05, 2014 at 12:24
This week, Citywire Discovery reveals which global equity income managers have fared best through boom and bust.
It has been a tumultuous time for global equity income investors, reflected in some major shifts in the performance rankings.
The MSCI World High Dividend Yield index has now lagged the MSCI World index for the past two calendar years, by 4.5 percentage points in 2013 and 3.2 percentage points in 2012. The income index is still ahead on a three-year view, however, thanks to its stunning 2011 – when it gained 4.8% while the broader market lost 5%.
Few managers in the sector have been able to deliver strong risk-adjusted returns over both three and one-year periods; indeed, several have suffered – or enjoyed – dramatic reversals of fortunes.
Beneficiaries of the bifurcation include Citywire + rated Thomas See at Schroders, Nicholas Purves at RWC, and Legg Mason’s AA-rated star Paul Ehrlichman, whose performances all look better now than a year ago.
The most impressive turnaround has come from Ehrlichman: he has gone from a risk-adjusted three-year performance in the bottom quintile at this point in 2013 to the top quintile now.
That is a factor of a spectacular year in which Ehrlichman’s personal information ratio of 1.97 tops the peer group, far ahead of the average of 0.17. His principal divergences from the index have been substantial underweights to the US and healthcare, with a notable overweight to France.
Conversely, slipping down the rankings have been Aberdeen’s Stephen Docherty, M&G’s + rated Stuart Rhodes, River and Mercantile’s Alex O’Reilly, and Threadneedle’s + rated Stephen Thornber. This time last year, for example, Thornber could boast a top-decile risk-adjusted three-year performance; now he is below average. He too is significantly underweight the US and healthcare, but his stock selection has not been as positive as Ehrlichman’s.
Only two sets of managers have been able to sustain top-quartile three and one-year risk-adjusted numbers over the past 12 months: AAA-rated Jacob de Tusch-Lec at Artemis, and Henderson’s pair of AA-rated Ben Lofthouse and AAA-rated Andrew Jones. They alone in this peer group have not let events – the flight from bond proxies, broad rallies and sharp sell-offs – overtake their performance.
Buyers have rewarded de Tusch-Lec in particular for this, with his market share rising steadily over the year from 0.9% to 2.6% – growth worth more than £600 million.
The analysis comes from Citywire Discovery, a new desktop system that allows fund buyers and fund groups to access track records of over 9,000 managers tracked by Citywire. It provides unique insights into peer group analysis, performance comparisons and competitor analysis. For more details contact email@example.com
Jacob de Tusch-Lec, Artemis
It has been a sensational run for Citywire AAA-rated Jacob de Tusch-Lec, whose fund was smaller than £100 million at the start of 2013 but is now closing in on the £1 billion mark.
On a risk-adjusted basis, de Tusch-Lec is a top-decile performer over both one and three years, testament to his willingness to depart from the index in stock selection.
His top 10 holdings, for instance, are an eclectic collection of companies rarely seen in mainstream portfolios: the Portuguese postal service is his largest single position.
Like many an income manager de Tusch-Lec has an interest in tobacco, but his approach is typically unconventional: through e-cigarette specialist Lorillard. ‘Lorillard pays a 5% dividend yield and its earnings are growing by a double-digit percentage – not bad for an ex-growth industry,’ he explained.
Three-year total return: 44.6%
Stuart Rhodes, M&G
Stuart Rhodes, + rated by Citywire, is responsible for one of M&G’s collection of blockbuster funds: those that race from launch to being multi-billion juggernauts.
It took three years to hit its first billion, but since passing that landmark in 2011 its growth has been relentless – £7.7 billion in just three years. Now closing in on £10 billion, Rhodes recently revealed that he is looking to expand his team on the fund; he is currently supported by co-manager Simon Bailey.
Global Dividend has slipped below the peer group average over the past year, but Rhodes is confident that he can outperform in 2014. ‘The valuation of the fund is down and is now cheaper than the market and that feels good,’ he argued. ‘The valuation of this fund is looking more attractive than it has done in the last two-and-a-half years.’
Three-year total return: 28.8%
Thomas See, Schroders
Thomas See, + rated by Citywire, runs his portfolio along different lines from the others in this peer group.
His £892 million Global Dividend Maximiser fund seeks to fulfil the promise of that last word through option contracts: selling short-dated calls on individual stock holdings to generate extra income, albeit at the cost of capping the upside potential.
That trade-off has not been rewarded during the market rally: the fund trails the MSCI World index over one and three years, although it has been less volatile than the wider market.
Yet so far this year, while equities have not been uniformly surging, the extra income generated through the strategy has proved its worth: the fund has delivered 1.2% while the market is up 0.6%.
On a risk-adjusted basis too performance has improved: a year ago the fund had a bottom-quintile one-year return, but has now edged above the peer group average.
Three-year total return: 25.7%
James Harries, BNY Mellon
James Harries has the second greatest market share in this sector, but his £4.1 billion Citywire Selection Newton Global Higher Income fund is below average on a risk-adjusted view over both one and three years. The same was true a year ago, although performance has picked up slightly since then.
Harries observes that on absolute basis, he has just about kept pace with the index. ‘After a rip-roaring bull market and relatively cautious positioning, and in an income fund, we are not that unhappy,’ he commented.
‘It shows that over the past five years or so, we have actually performed reasonably okay. It is just last year when we struggled to keep up in what we considered to be a very strongly liquidity-fuelled market, which we felt to be dangerous.’
Three-year total return: 29.1%
More about this:
Look up the funds
- Artemis Global Income R Inc
- Legg Mason Global Equity Income A Acc
- Henderson Global Equity Income A Inc
- M&G Global Dividend A GBP Inc
- RWC Income Opportunities A GBP
- Threadneedle Global Equity Income Ret Net Acc GBP
- Schroder ISF Global Dividend Maximiser A Acc
- Newton Global Higher Income GBP Inc
- River and Mercantile Global High Income A
Look up the fund managers
- Jacob de Tusch-Lec
- Paul Ehrlichman
- Ben Lofthouse
- Stuart Rhodes
- Stephen Thornber
- Thomas See
- James Harries
- Alex O'Reilly
- Nicholas Purves
- Stephen Docherty
- Andrew Jones