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M&G Global Dividend Fund research update

Heather Ferguson | Fri 20 February 2015

Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.

Stuart Rhodes, manager of the M&G Global Dividend Fund, seeks businesses where the dividend is an integral part of the company's ethos. He prefers businesses capable of dividend growth rather than high-yielding companies with little income growth potential and the fund currently offers a yield of 3.2%. This is attractive in comparison with many other funds in the sector, although is variable and not guaranteed.

The long term performance of the fund is strong. It has returned 66.1%* over the past five years compared with 58.3% for the IA Global sector, although this should not be seen as an indicator of future returns. However, all funds undergo periods of underperformance and the fund has had a torrid time over the past year, underperforming the MSCI AC World index by 13.3%*.

Performance of the M&G Global Dividend Fund over the past five years

Past performance is not a guide to future returns. Source Lipper IM * to 02/02/2015.

Annual percentage growth
Feb 10 -
Feb 11
Feb 11 -
Feb 12
Feb 12 -
Feb 13
Feb 13 -
Feb 14
Feb 14 -
Feb 15
M&G Global Dividend 21.74% 3.38% 16.70% 7.20% 5.53%
IA Global 17.76% -3.80% 13.27% 9.94% 12.23%
MSCI AC World 19.31% -1.45% 15.66% 6.66% 19.60%

According to the manager, the recent fall in the oil price accounted for 5% of this underperformance. Holdings such as Prosafe and Seadrill have fallen heavily. They are heavily exposed to the deep-water drilling market where demand is declining, affecting their profitability. The manager does not wish to dispose of these holdings at present as he feels there is scope for some recovery. However, he would look to sell following any rebound as he now has concerns about the sustainability of their dividends. There are a number of stocks which have fallen in value, as a result of the collapse in the oil price, where the manager feels the fall is unjustified. In these cases, he has taken the opportunity to top-up holdings at lower prices.

The fund is able to invest in companies across the globe, but has recently had a lower allocation, in comparison with the index, to US firms. Exposure to quality American companies such as Reynolds American and Reckitt Benckiser was reduced as the manager felt they had become overvalued. This hurt performance as stocks in America outperformed the wider market over the past few years. The fund was also disadvantaged as it did not hold Apple, the largest listed company in America, which has performed well. The manager has reassessed his view and plans to increase the fund's US exposure in 2015.

Elsewhere, the fund holds shares in Las Vegas Sands and Sands China. Both companies own casinos in the growing mass-gambling market in Macau, China. Recently, the holdings have been negatively affected by a clamp down on corruption in the un-related higher end of the gambling market. However, the manager feels they could both receive consistent, reliable and sizeable cash flows as the region develops and is confident a large portion of profits will be passed onto shareholders. He has therefore been taking advantage of this share price weakness to increase the fund's position.

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Our view on this fund

While the fund has undoubtedly had a difficult year, we remain confident in the manager's ability to outperform over the long term. The manager has adopted a more staggered approach when selling stock, to avoid missing out on gains should they continue to perform well, and has a positive outlook for the fund. However, we have greater conviction in other managers in this area, and for this reason the fund does not currently feature on the Wealth 150 list of our favourite funds across the major sectors.

Please note the fund's charges can be taken from capital, which can increase the yield but reduce the potential for capital growth.

Find out more about this fund including how to invest

Please read the key features/key investor information document in addition to the information above.

The value of investments can go down as well as up, this means you could get back less than you invested. Therefore all investments should be regarded with a long term view. No news or research item is a personal recommendation to deal. If you are unsure about the suitability of an investment please contact us for advice.
Important information - Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice. No news or research item is a personal recommendation to deal.


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