Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
These are strange times for income investors. Bonds, the reliable heart of many income-seeking portfolios, are suddenly not looking so reliable. One of the worst quarterly performances by government bonds in the past 40 years has prompted a debate about the future for fixed income investments and the role that they play in a balanced portfolio.
Investors may feel like they can’t win. Before yields took an upward turn, they had been trailing at rock bottom levels, meaning many income investors turn to shares instead - only to find a host of companies cancelling their dividend payments in the wake of last year’s volatility.
In tricky times like these, it may help to turn to an actively managed dividend fund, which is designed to navigate the world of dividend-paying shares on your behalf.
The Fidelity Global Dividend Fund, one of our analysts’ Select 50 choices of favourite investments, is managed by Dan Roberts, who has more than 15 years’ experience as an equity income portfolio manager to his name.
The aim of the fund is to achieve income and long-term capital growth from a portfolio consisting primarily of company shares from around the world.
Roberts’ approach focuses on identifying good-quality companies with attractive valuations which can thrive under a wide range of economic scenarios. Most of all he wants stable companies, which pay well-covered dividends, while avoiding those with unsustainable dividends.
That means capital preservation is very important to Roberts. He invests according to the old Warren Buffet mantra that the first rule of investing is never to lose money. He is a disciplined, numbers-focused investor with a focus on cash conversion, earnings persistence and balance sheet strength. Downside protection - thinking about what could go wrong - is just as important to this manager as a stock’s potential upsides.
That’s been an important characteristic over the past 12 months, as those with poor dividend cover were among those unable to pay shareholders last year. This focus on capital preservation and downside protection means that the fund is well positioned to outperform in falling markets, but may lag during strongly rising markets.
He’s also keen to avoid ‘value traps’ - shares which look attractive on the face of it, but are lowly-priced or have a high dividend yield for a good reason. He sees a high-yield as a potential pre-cursor to a dividend cut. It’s only until he feels comfortable with the underlying business model that he’ll think about investing.
Fortunately for Roberts, the fund’s global remit means he is able to look across the globe for companies that suit his approach. That’s a big advantage because sectors tend to cluster in certain geographies and be notably absent from others. Technology, for example, is not a feature of the European markets but is strong in the US and Asia. Asian investors do not have much exposure to healthcare.
At present, the fund has its largest geographical exposure to the US, which accounts for 32.5% of the portfolio. Europe and the UK are close behind, at 28.3% and 13%, respectively.
The portfolio is similarly diversified across industries. Typical defensive sectors like consumer staples and healthcare count for over 25% of the portfolio between them, while large technology dividend payers like Samsung, Cisco and Intel also feature within the fund’s top 10 holdings.
A diversified portfolio like this can protect investors when certain industries or markets become volatile. Income seekers have had to get used to that recently, but an experienced hand like Roberts’ may help through any uncertainty ahead.
More on Fidelity Global Dividend Fund
Investors should note that the views expressed may no longer be current and may have already been acted upon. Select 50 is not a personal recommendation to buy or sell a fund. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. The Fidelity Global Dividend Fund uses financial derivative instruments for investment purposes, which may expose the fund to a higher degree of risk and can cause investments to experience larger than average price fluctuations. Currency hedging is used to substantially reduce the effect of currency exchange rate fluctuations on undesired currency exposures. There can be no assurance that the currency hedging employed will be successful. Hedging also has the effect of limiting the potential for currency gains to be made. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.
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