AEGON GLOBAL EQUITY INCOME: Fund full of the biggest beasts of the stock market

Global dividends are in a sweet spot and, according to recent research from asset manager Janus Henderson, are poised to rise 6 percent next year.

This is the opinion shared by the manager of the Aegon Global Equity Income investment fund. Mark Peden says there is currently a “deluge” of dividends on global stock markets. “We are enjoying a decade of dividends,” he says.

Peden is a strong believer in global equity investing. He set up the Aegon fund 12 years ago and it has been a resounding success, offering an attractive combination of income and capital returns.

Over the past five years, the £690m fund has generated an overall return of 68 per cent, compared to its peer group average of 50 per cent. Over the past year, the respective figures are 23 and 18 percent.

“It’s a simple investment proposition,” says Peden. ‘It is global and the fund invests in 14 stock markets. The fund is fully invested in equities – a simple portfolio without the use of derivatives.’

He adds: ‘And the revenue comes from companies that tend to be big stock market beasts: household names with strong balance sheets and good returns on equity. “If a company doesn’t pay dividends, it won’t make it into the portfolio.”

The fund is made up of 49 holdings and the portfolio is biased towards the US (58 percent). It also has a significant portion of its assets in Asia Pacific, where companies are increasingly focused on generating income for shareholders.

For a stock to enter the fund, it must pass through at least four of Peden’s six filters, built around the quality of the current dividend it is paying and its sustainability. “We want companies that grow their dividends,” says Peden.

According to him, the fund’s portfolio consists of three types of income-friendly stocks. Typically, half of the fund is made up of dividend ‘combiners’: companies that have a long history of paying their shareholders increasing income, year after year. These include companies such as US insurer Cincinnati Financial Corporation, global energy giant Schneider Electric and chemical multinational Linde.

The other half is made up of “hoarders” and “balancers.” The first are companies that are currently underdistributing dividends to shareholders and it seems that they are going to reverse that trend. The latter include companies that have the possibility – for example, by reorganizing their balance sheets – to buy back shares, increasing the dividends available to remaining shareholders.

This three-pronged approach produces a portfolio different from most other income-oriented global funds, with considerable exposure to large technology companies such as Microsoft (its largest holding) and Taiwan Semiconductor Manufacturing Company. These companies, Peden says, offer the potential for an interesting combination of high dividend growth and strong share price gains.

Aegon’s income strategy has proven so successful that the fund is sold around the world, with an additional £400 million of funds managed identically. Peden is supported by four other investment managers and analysts.

The dividend paid by the fund is equivalent to an annual income of 2.2 percent and investors are paid quarterly. The fund’s fees are attractive at 0.64 percent. “This fund is my baby,” Peden says. “I have invested a large part of my pension in it.”

Rival global equity funds getting the nod from ratings firm FundCalibre include those run by Evenlode, Fidelity, Guinness, JPM, M&G and Redwheel.