The must-have in an asset manager’s fund line-up at the moment is an equity income fund of some description. It could be global, or region-specific, but one thing’s certain: the word 'income' in a fund’s name creates a flurry of interest.
The Investment Management Association (IMA) is capitalising on the trend too, with the launch of its global equity income open-ended sector, comprising some 104 share classes from 22 funds. Forty-two of those share classes were launched in the last two years.
I wonder if many investors aren’t missing a trick, though, when looking only at open-ended funds.
The benefits of the closed-end funds when it comes to dividend payments are well aired. Their ability to retain income in revenue reserves allows them to save money for leaner years and smooth dividend payments.
This is becoming an increasingly cited argument in favour of the investment trust structure. Indeed, it’s one I support whole-heartedly.
However, this very ability means investment trusts have long been paying out steady flows of income, as well as generating returns that often beat their open-ended counterparts.
In other words, it can be the best of both worlds. That’s not to say investment trusts give investors any smoother a ride than open-ended funds. In fact, the use of gearing can make it much bumpier. But funds such as Murray International have plodded along quietly, shrouded by the noise of the open-end global equity income funds.
Murray International (MYI) in particular has been increasing its dividend every year in real terms – or at the very least maintained it – since 1973. That hasn’t come at a cost to capital growth, either. The fund beats its Morningstar Global Large-Cap Blend equity category average peer by nearly 4.5 percentage points over 15 years on an annualised basis. A look at the global investment trust universe shows that some of the most consistent dividend-payers aren’t even classified as Global Growth & Income under the Association of Investment Company’s (AIC) sectors, but simply as Global Growth.
Such funds don’t always carry headline-grabbing yield figures, nor make commitments to yield 10 per cent more than the FTSE All-Share index. But we’re in the midst of a time of low interest rates, which look set to stay low for some time, and minimal economic growth. So I’m pretty sure there are many investors out there who would happily settle for a modest but steady, sustainable yield with the prospect of capital growth.
That means, to my mind at least, that longstanding funds such as Murray International and others with steady income should be the clear winners and sweep the board, Oscar-style. And yet asset managers persist with rolling out new variations on the theme, and not always with the right kind of fund manager, nor the right kind of charging structure, and almost exclusively as open-ended funds so as to grow the asset base more easily. Yet numerous equity income OEICs have shut to new business to restrict their capacity, which the managers find it hard to manage.
The combination of some long-serving managers at investment trusts, with proven track records, producing steady income, with a fund board that’s keeping revenue reserves topped up for the tricky years, all for less than you pay in an OEIC, is a pretty good way to invest with success.
This article was originally published March 12, 2012 in Investment Adviser, which is part of the FT Group. Here is the original story.
