Baillie Gifford Global Income Growth
1-year return: 2.5% | 3-year return: 36.8%
This fund is the top performer in the IA global equity income sector over three years and has delivered its performance with low volatility – a key metric for these awards. The £516 million fund aims to produce an attractive total return by combining a market-beating yield with long-term income and capital growth. It is yielding 2.7 per cent, versus 2.4 per cent for the FTSE All-World index.
Managers James Dow and Toby Ross focus on quality, competitive advantage and long-term growth potential. They run a diversified portfolio of around 70 companies, with a wide geographical spread from Australia to South Africa and Mexico. Their investment focus is on fundamentally attractive stocks that offer income and capital growth over the long run, rather than high-yielding stocks to the exclusion of other factors.
In the fund’s latest annual report, they point to strong operational performance being translated into good progress in dividends. For example, the Hong Kong-listed sportswear company Anta Sports has reported healthy growth in both its free cash flow generation and its dividend, while French luxury goods group Kering, whose brands include Saint Laurent, Gucci and Bottega Veneta, has continued to perform strongly with encouraging progress in sales, operating margins and dividend payouts.
They prefer ‘capital-light growers’ and have recently taken new positions in US insurance broker AJ Gallagher and Dutch specialist information provider Wolters Kluwer. Both are people and information businesses and can grow organically without significant capital investment.
HIGHLY COMMENDED FUND
Newton Global Income
1-year return: -2.8% | 3-year return: 35.9%
This £5.3 billion fund has undergone manager changes in recent years, but its process and returns have remained solid. James Harries, manager since inception in 2005, left in 2015. Nick Clay, an alternate manager for the fund since August 2012, took over. In March 2017, Ian Clark, the fund’s dedicated equity analyst since 2012, became alternate manager. Robert Canepa-Anson assumed his previous role. Clark will leave the fund manager in August 2018 and Newton is seeking a successor.
Nevertheless, the team retains a good level of experience. The fund leverages the firm’s thematic approach to investing, with the global debt burden, China’s influence, and the impact of the internet among the themes researched.
A team of analysts comes up with stock ideas that fit with the thematic analysis. Portfolio candidates must have a prospective dividend yield greater than 125 per cent of the yield on the FTSE World index; they will be sold if the yield falls below the benchmark average. The fund’s yield is in line with this at 3 per cent.