Funds can be a useful tool for investors seeking income while still remaining diversified. However, as with picking individual dividend stocks, investors should be wary of just choosing funds with the highest yield. Performance is a key element here.
As part of income week, we profile three funds that invest in dividend paying stocks across Europe, paying out an income yield while also outperforming peers in the shorter and longer term.
To screen for the top-performing funds in this category, we looked for those with the best returns over the last one-, three-, and five-year periods. Three Europe equity income funds made it through the screen, including one ETF.
- Fidelity Funds - European Dividend Fund
- Franklin European Quality Dividend UCITS ETF
- JPMorgan Investment Funds - Europe Strategic Dividend Fund
We have highlighted three accumulation, or “acc” share classes in this article, meaning they reinvest the income received from its holdings.
Income, or “inc” share classes are also available—as the name suggests, an income unit does pay out the dividend, either into the cash account of your ISA or trading platform, or directly into your bank account.
Investors are often encouraged to choose accumulation share classes while still working and saving for the future. Income share classes can suit those in retirement looking to rely on the income paid for living expenses. This income could also be exposed to income tax if held outside of an ISA or a SIPP.
Europe Equity Income Funds’ Performance
Over the last 12 months, Europe equity income funds have returned 10.61%. On an annualized rate, Europe equity income funds have returned 10.98% over the last three years and gained 11.60% over the last five years. That compares with the Morningstar Europe Index, which has returned 7.57% over the last 12 months, gained 11.91% per year over the last three years, and gained 11.66% per year over the last five years.
Europe Equity Income Funds vs. the Morningstar Europe Index
Source: Morningstar Direct. Data as of May 20, 2025.
What Are Europe Equity Income Funds?
Europe equity income portfolios invest in European equities that pay out above-market yields. Funds in this category can invest in companies of any size, though many exhibit a large-cap bias.
Screening for the Top-Performing Europe Equity Income Funds
To find the best Europe equity income funds, we looked at returns data from the past one, three, and five years, using data available in Morningstar Direct. We screened for Europe-domiciled open-ended and exchange-traded funds in the top 33% of the category using their lowest-cost primary share classes for those periods. We excluded funds with assets under £100 million. This left three funds.
Because the screen was created with the lowest-cost share class for each fund, some may be listed with share classes that are not accessible to individual investors, or they may be aimed at institutional investors and require large minimum investments. The individual investor versions of those funds may carry higher fees, reducing returns to shareholders. In addition, Medalist Ratings may differ among the share classes of a fund.
Fidelity Funds - European Dividend Fund
- Share Class: Fidelity European Div I-Acc-EUR
- Morningstar Medalist Rating: Neutral
- Morningstar Rating: ★★★★★
Over the past year, the £807.1 million Fidelity European Dividend Fund rose 15.54%, while the average fund in its category rose 12.20%. The Fidelity International fund, which launched in July 2017, has climbed 13.78% over the past three years and gained 13.16% over the past five years.
The fund’s annual dividend yield is 4.17%, compared with a category average of 4.69%.
“This strategy has displayed lower yield exposure than peers, holding fewer companies with high dividend or buyback yields over recent years. This is demonstrated by the portfolio’s low exposure to dividends or buybacks. While companies with high yields provide steady income payments, they may cut payouts if their earnings fall. In recent months, the strategy also had less yield factor exposure than its peers.
“This strategy has tended to hold more growth stocks than others in the Europe equity income Morningstar category. But in terms of market capitalization, it is on par with peers.
“The portfolio is overweight in consumer defensive and financial services relative to the category average by 6.1 and 3.8 percentage points, respectively. The sectors with low exposure compared with category peers are healthcare and basic materials, underweight the average by 6.2 and 3.7 percentage points of assets, respectively.
- Morningstar Manager Research
Franklin European Quality Dividend UCITS ETF
- Ticker: FLXD
- Morningstar Medalist Rating: Silver
- Morningstar Rating: ★★★★★
The £266.1 million fund has climbed 21.19% over the past year, outperforming the average fund in its category, which rose 12.20%. The Franklin Templeton fund, which launched in September 2017, has climbed 12.68% over the past three years and gained 13.74% over the past five years.
The fund’s annual dividend yield is 4.81%, compared with a category average of 4.69%.
“This strategy tends to hold smaller, more undervalued companies than its average peer in the Europe equity income Morningstar category. Examining additional factor exposure, this strategy has consistently had a defensive tilt owing to its exposure to high-quality stocks over the past few years.
“This strategy has also displayed a tendency to hold more companies with high dividend or buyback yields than peers over recent years. Higher-yield stocks can provide dependable income, but also have their risks. Dividend payers may cut payouts, for instance, if their earnings fall. Compared with category peers, the strategy also had more exposure to the yield factor in the most recent month.”
“The portfolio is overweight in communication services and financial services relative to the category average by 10.5 and 7.7 percentage points, respectively. The sectors with low exposure compared with category peers are consumer cyclical and industrials, underweight the average by 8.2 and 7.1 percentage points of assets, respectively. The portfolio is composed of 55 holdings and is relatively top-heavy.”
- Morningstar Manager Research
JPMorgan Investment Funds - Europe Strategic Dividend Fund
- Share Class: JPM Europe Strategic Dividend I2(acc)EUR
- Morningstar Medalist Rating: Silver
- Morningstar Rating: ★★★★★
Over the past year, the £541 million JPMorgan Europe Strategic Dividend Fund rose 16.36%, while the average fund in its category rose 12.20%. The JPMorgan fund, which launched in December 2017, has climbed 15.09% over the past three years and gained 15.11% over the past five years.
The fund’s annual dividend yield is 5.19%, compared with a category average of 4.69%.
“This strategy skews toward smaller, deeper value companies than its average peer in the Europe equity income Morningstar category. Looking at additional factor exposure, this strategy has consistently favored low-quality stocks compared with Morningstar category peers over the past few years. Such positions do not tend to provide much ballast for a portfolio. In the latest month, the strategy was also less exposed to the quality factor compared with Morningstar Category peers.
“The portfolio is overweight in financial services by 5.3 percentage points in terms of assets compared with the category average, and its communication services allocation is similar to the category. The sectors with low exposure compared with category peers are healthcare and consumer defensive, underweight the average by 5.0 and 3.7 percentage points of assets, respectively. The strategy owns 258 securities.”
- Morningstar Manager Research
This article was generated with the help of automation and reviewed by Morningstar editors. Learn more about Morningstar’s use of automation.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
