During times of economic and political upheaval, investors are drawn to financially stable companies with dominant reputations in their respective sectors. These prominent stocks are usually in established industries and boast strong balance sheets, consistent cash flows, and multinational customer bases.
Many will also pay regular dividends from their profits, providing loyal shareholders with additional income or boosting long-term returns. Such companies are particularly favoured by the managers of global equity income funds that look to provide investors with steady income and capital growth.
Please remember that the value of investments will fluctuate and returns may be less than the amount originally invested. Tax treatment depends on your individual circumstances and tax rules can change. Chelsea does not offer advice and so if you are unsure of anything please contact an expert adviser.
Enthusiasm for this area
UK investors have certainly embraced this area. Over the past year, they have ploughed billions of pounds amid concerns about the economic backdrop. They now have £27.6 billion invested in this area – up £3.3 billion over the past 12 months, according to the latest Investment Association data*. Their enthusiasm has been fuelled by geopolitical uncertainty, expectations of interest rate cuts and a desire to be more defensively positioned.
But how do portfolios in this area operate? Are they all invested in the same stocks and sectors, or do they take different approaches? We thought it was time to find out.
Our chosen funds and their current yields^:
- Fidelity Global Dividend (2.54% yield)
- Guinness Global Equity Income (2.61% yield)
- IFSL Pinnacle Global Equity Income (2.13% yield)^^
- JPM Global Equity Income (2.00% yield)
- M&G Global Dividend (2.41% yield)
Geographies
Despite the fact that the US is traditionally a lower-yielding market, it is still the clear winner in terms of geographical positioning, with all five funds having their largest regional allocation there. The UK, considered a more traditional income market, emerges as the second most popular country for three of the global equity income fund managers, while it came third and fourth on the list of the remaining two.
US companies distributed a record $651.6 billion during 2024, up 8.7% on an underlying basis, according to the Janus Henderson Global Dividend Index**. This $50 billion increase was more than the total distributed by Swiss companies and almost as much as the pay-outs of German businesses.
The JPM Global Equity Income fund has 61% exposure to the US, according to its latest factsheet, with Europe & Middle East ex UK the next highest on 14%***. We see this as a core equity income fund that invests in large to mega-cap stocks. It will also consider holdings in the emerging markets. Its managers, Helge Skibeli, Sam Witherow and Michael Rossi aim to achieve a superior yield, without sacrificing growth. They also have the support of a huge global team of analysts.
The Fidelity Global Dividend fund, meanwhile, still had the US as its largest regional exposure, although this was a relatively modest 24%*** as it takes a more diversified geographical approach. This is another core global income fund investing in companies offering a healthy and sustainable dividend yield. It’s unconstrained in terms of where it can invest. We see it as a well-diversified, lower-risk fund that may suit investors seeking a stable, and potentially rising global income.
Sectors
There was a more diverse spread of favoured sectors among the five portfolios, with industrials, consumer staples, information technology, technology semi & hardware and financials taking a top spot. Almost half the growth in 2024’s dividends came from financials, particularly banking names, which are the largest component of this sector**. Banking dividends actually rose $36.4 billion**.
The M&G Global Dividend fund currently has 18% in both financials and information technology names and 13% exposure to materials***. Lead manager Stuart Rhodes takes a pragmatic approach to portfolio construction and has created a concentrated portfolio of 40 to 50 stocks. Although it doesn’t typically provide the highest yield, it does offer a rising income stream and excellent total returns for investors.
Companies
Microsoft is currently the world’s largest dividend payer**. The US tech giant, established by Bill Gates in the 1970s, has paid out the most to investors in both 2023 and 2024. Even more impressive is the fact that it’s been among the top four biggest global payers every year since 2018, according to Janus Henderson’s data**. Microsoft is the largest individual holding in the IFSL Pinnacle Global Equity Income fund^^^, which limits exposure to generic style, sector or geographic risks by focusing on stock picking.
Another popular company with our funds is TSMC (Taiwan Semiconductor Manufacturing), a semiconductor foundry that was started back in 1987. It’s currently the second largest holding in the Guinness Global Equity Income fund***, which is managed by Matthew Page and Dr Ian Mortimer. They typically select 35 equally-weighted stocks that are held for three to five years. A key attribute they consider is how well a company uses its money to generate returns. The fund also has a one-in, one-out policy that enables it to stay-up-to-date with the managers’ best ideas, rather than the number of positions forever increasing.
