Journalist Philip Scott talks to key members of the Henderson Global Equity Income Team: Alex Crooke, Ben Lofthouse and Andrew Jones
Alex Crooke, Head of Global Equity Income, along with fund managers Ben Lofthouse and Andrew Jones, survey the international landscape in a bid to unearth stocks offering both an attractive income and the potential for capital growth.
Q. Why should investors consider a global approach to equity income investing?
Adopting a global approach expands the investment opportunities at our disposal. A global perspective allows us to gain access to faster-growing industries or companies, no matter where they operate, and take advantage of different market cycles. Right now, there is a wealth of opportunity worldwide, especially in the UK, Europe and Australia, where stocks are typically yielding above 2.5 per cent.
Q. How long have equity income strategies been managed at Henderson?
Overall, Henderson has several decades’ experience in this style of investing. We are a very experienced 11-strong team that specialises in global equity income strategies.
Q. What sets you apart from your competitors?
As well as the team’s strength and heritage, we have a consistent value bias when it comes to managing the portfolio. We focus on looking for under-valued opportunities, coupled with an examination of a company’s cash flow to see if its dividend is sustainable. We always look to minimise investment risk and unless a stock measures up to our analysis, we will not invest, even if the yield on offer is attractive.
Q. Do you put greater importance on capital growth or dividend growth?
For us, both capital and dividend growth – and indeed dividend sustainability – really go together. Dividends are generally a function of how successful a business is. If a company is growing its dividends on a consistent basis it is a sign of confidence that it’s doing well. Ultimately, if dividends are rising, a firm’s earnings should be too; on that basis, the capital is going to grow as well.
Q. To what extent do macroeconomic factors influence your investment approach?
Fundamentally, we are very much bottom-up stock pickers. Our process is about finding income growth and yield for our investors, which naturally leads to certain sectors and countries. Our strategy then involves examining those regions, and how their macroeconomic backdrop stands up to our own scrutiny. Russia, for example, currently has lots of cheap stocks but we do not own anything there because we believe the risks are not quantifiable and, therefore, we should not invest in the region.
Q. Are you identifying common investment themes across the world?
A common theme is that financing rates are very cheap, particularly across developed markets. This, in turn, is leading to a number of trends, such as consolidation. We are seeing quite a pick-up in merger and acquisition (M&A) activity in a number of sectors. This backdrop of cheap financing is most attractive for companies that are generating cash and where their dividend yield is higher than their debt financing. For example, currently more than 70 per cent of European companies have a dividend yield greater than their corporate bond yield. As a result we are seeing more debt issuance, which is being used to finance stock buybacks.
Q. Have special dividends increased over the last couple of years?
Yes, the Henderson Global Dividend Index shows that worldwide special dividends grew to some US$67 billion last year – almost twice the 2013 level. This pattern is coming from two areas, one being M&A activity. In 2014, we had the bumper payout from Vodafone following the sale of its 45 per cent stake in US firm Verizon. But this year, we are seeing dividends coming from companies as a result of stronger balance sheets. We are expecting another good year.
Q. Are you concerned about potentially higher interest rates?
We are not unduly concerned about interest rates rising from their ultra-low levels. Rates in the UK and US will rise with good reason, as these economies have been healing. For banks and insurers it will be good news. It could impact some sectors, but that is where having a global mandate comes into its own – we can focus on better opportunities elsewhere. There are different monetary trends going on worldwide – quantitative easing (QE) has only just started in Europe.
Q. Where are you finding the most attractive opportunities and what areas are you avoiding?
Financial, healthcare and technology are among the industries we are most positive about right now, with the US and Europe the two largest regions represented in the fund. In Europe, the low oil price and benign monetary policy is proving to be a strong macroeconomic tailwind. Where we do not have much exposure is across emerging markets, as we are not seeing the opportunities and we are struggling to find certainty in their dividend outlook.
Read the latest Henderson Global Dividend Index report and find out more about the Henderson Global Equity Income Fund online.