GUINNESS GLOBAL EQUITY INCOME: £2bn fund for tough times

As the name suggests, the Guinness Global Equity Income investment fund scours the world in search of companies that pay shareholders attractive dividends over the long term.

It’s an investment approach that was tested during the 2020 pandemic, when many companies suspended dividend payments — and it’s being re-examined as the global economy teeters on the brink of recession. Still, it proves remarkably resilient.

Over the past three years, the £2bn fund has had a total return – income plus capital – of 38%, which is above the average of its peer group (20%). It has also outperformed over the past year, with gains of 9 percent compared to the global equity income sector average of 1 percent.

The fund is managed by Ian Mortimer and Matthew Page, associates of wealth manager Guinness Global Investors. Page describes it as “ideal for uncertain times — and this is the world we live in right now.” He adds, “It’s a portfolio designed to withstand shock.”

It currently includes 35 stocks, companies all larger than $1 billion (£815 million) in terms of market capitalization. With the smallest, Australia-listed Sonic Healthcare (£9bn) and the largest Microsoft (£2.3tn), its holdings are usually household names. These include tobacco giants like Imperial Brands and British American Tobacco; and consumer brands such as Johnson & Johnson, Diageo and PepsiCo.

What unites these companies is their ability to generate profits through thick and thin — profits that can then be used in part to fund growing dividend payments. Page says, “It’s about identifying companies that are making the best use of their capital to deliver consistently high returns. This in turn allows them to reward shareholders with a stream of dividends.’

It’s a strategy based on analysis of company accounts going back ten years – and it results in a portfolio biased toward market-leading companies. They typically have pricing power — that is, the ability to raise prices without hurting sales or hurting profits. An important advantage in view of the rampant inflation worldwide.

The fund always holds 35 companies. About three times a year, stocks are all rebalanced back to 2.7 percent, but Page says good performers are “let go” for a while. Currently, the largest position is in BAT at four percent. “If a single holding hits 4.3 percent, we’ll push the position down,” he says. Page adds, “We are focused on applying our investment process. It works and we don’t deviate from it.’

Companies are held for at least three to five years, resulting in a portfolio that hardly changes. The last change came last year with the sale of the Chinese sporting goods manufacturer Anta and the stake in the US semiconductor manufacturer Texas Instruments. “We had good earnings on Anta,” Page says, “and felt like Texas offered us strong dividend growth.”

The fund has a good current record. Someone investing £100 at the time the fund launched in late 2010 would have received a growing annual dividend every year except in 2020 when it fell from £5.40 to £5.37.

So far this year, 26 holdings have announced details of their 2022 dividends. 23 have increased dividends — by 8.5 percent on average — while three have kept them at 2021 levels. Shares in the fund trade at around £21.85 and annual charges are 0.8 per cent. Though yields are modest at just over 2%, they’re growing, which is reassuring for investors.