Equity income funds have traditionally focused on the UK stock market due to the established dividend culture in many British companies. However, as investors look to diversify their income portfolios, global equity income funds are becoming more popular.
The JPMorgan Global Equity Income Fund managed by Gerd Woort-Menker, has had mixed performance since its launch in 2007. The fund's relatively defensive positioning provided an element of shelter throughout the 2008 financial crisis, however it has failed to keep up with its peers through the subsequent recovery. Over the past 3 years, the fund's un-hedged share class (see explanation below) has broadly kept pace with its peers but underperformed the MSCI AC World index. More recently performance has shown signs of improvement, although there are no guarantees this will continue.
|Annual percentage growth|
| Feb 10 -
| Feb 11 -
| Feb 12 -
| Feb 13 -
| Feb 14 -
|JPMorgan Global Equity Income Fund A||N/A||N/A||13.34%||7.61%||14.09%|
|JPMorgan Global Equity Income Fund (Hdg)||14.95%||-5.31%||14.52%||12.85%||11.49%|
|MSCI AC World TR GBP||19.31%||-1.45%||15.66%||6.66%||19.6%|
|IA Global Equity Income||17.36%||1.23%||15.53%||7.71%||12.47%|
Past performance is not a guide to future returns. Full year performance data for the hedged share class are unavailable before 01/02/2012. Source: Lipper IM
The manager is currently biased towards companies he feels will benefit from the improving economic environment across developed countries; he favours companies in the financial, technology, insurance, and consumer services sectors, and seeks businesses capable of growing their dividend over time. He believes these companies are more attractively valued than defensive, high-yielding firms, and feels they could perform well when interest rates rise. This has hurt more recent performance as these economically-sensitive companies have underperformed their more defensive counterparts. However, the manager has maintained this positioning as he is confident his views will come to fruition in time. The fund also features investment in smaller companies, which can be more volatile than their larger counterparts.
Quantitative easing in Europe could help to revitalise growth and reduce the threat of deflation. While a break-up of the EU trigged by a Greek exit could de-rail a recovery, the manager feels prospects for many European companies are supported by improving profits and dividend growth. He also feels the region is undervalued by other investors, which provides an opportunity to purchase shares at discounted prices.
Elsewhere, the strengthening dollar, along with continued weakness in commodity markets, has led the manager to conclude prospects for higher risk emerging market equities are poor. As their currencies weaken, the cost of their US dollar denominated debt, which has been increasing due to the low interest rates available, rises. This leaves companies with less money with which to pay dividends or invest in growth. As such, the fund currently has a lower exposure to this region compared with the MSCI AC World index.
To hedge or not to hedge?
For the past three years, the fund has offered a share class which 'hedges' (in effect aims to cancel out) the impact of any currency movements for UK investors. Which class investors use is down to personal preference. Those investing overseas with the intention of diversifying their investment and currency exposure, or investors who feel the pound is likely to weaken verses other major currencies, are likely to consider the un-hedged share class. Those who wish to reduce any influence of currency movements, or feel the pound will be stronger than other currencies, may prefer to invest in the hedged share class.
Our view on this fund
The fund was removed from the Wealth 150 in January 2014 as it was not delivering the level of outperformance we expected. Our analysis suggests the fund's sector and geographical positioning has been positive, however stock selection has detracted from returns. While we have no major concerns over the manager's investment approach, we are not currently considering the fund for the Wealth 150 list of our favourite funds across the major sectors.