With Dividend Funds, Global Beats Local

“After
a
long
period
of
fading
investor
interest,
the
regime
shift
in
central
bank
policy
sparked
renewed
investor
appetite
for
dividend
strategies,”
according
toGlobal
Equity
Income
Landscape:
The
Renaissance
of
Global
Dividends,
authored
by
Morningstar’s
Monika
Calay,
director
of
passive
strategies
research
EMEA,
and
Jeffrey
Schumacher
CFA,
director
of
of
manager
research
EMEA.

The
Key
Takeaways

Global
Funds
are
Preferred

Global
funds
give
investors
something
that
regional
ones
can’t,
even
if
these
markets
were
traditionally
strong
hunting
grounds
for
yield
seekers.

“While
Europe
and
the
UK
are
home
to
a
vast
universe
of
robust
dividend-payers
and
higher-yielding
stocks,
investors
increasingly
opt
for
the
significantly
wider
opportunity
set
that
global
approaches
offer,”
Calay
and
Schumacher
say.

“It
enables
portfolio
managers
to
invest
in
sectors
that
might
be
hard
for
regional
strategies
to
get
exposure
to.
The
technology
sector
is
a
striking
example,
as
several
US-based
technology
companies
poses
many
characteristics
that
dividend
investors
look
for.”

Active
Funds
Dominate

In
many
other
investing
categories,
passive
funds
are
dominant
in
terms
of
fund
flows,
but
income
is
the
exception.

The
10
largest
income
funds
in
Europe
include
just
one
passive
fund –
Vanguard
FTSE
All
World
High
Dividend
ETF –
which
has
a
Morningstar
Medalist
Rating
of
Gold.

Still,
passive
strategies
are
gaining
market
share,
from
1.6%
to
8.7%
in
the
10
years
to
the
end
of
October
2023.
And
passive
funds
now
have
more
than
€10
billion
of
assets
under
management.

Dividend
funds
also
have
a
high
survival
rate,
with
66%
of
active
funds
making
it
to
their
10^th
birthdays,
and
that
rises
to
90%
for
passive
funds.

They
Can
Be
More
Flexible
Too

Passive
income
strategies
are
low
cost
of
course,
but
often
focus
on
yield,
which
is
a
backward-looking
metric
too.

“Screening
for
the
highest
yields
can
lead
to
significant
sector
concentrations
and
increases
the
risk
of
dividend
cuts
if
the
generous
yields
prove
unsustainable,”
the
report
says.

In
contrast,
active
funds
can
focus
on
sustainable
and
growing
dividends,
the
key
factors
for
income
investors.

“A
key
advantage
of
actively
managed
dividend
funds
is
their
emphasis
on
forward-looking
fundamental
analysis
to
not
only
assess
the
potential
for
dividend
growth,
but
more
importantly,
to
carefully
examine
the
sustainability
of
dividends.”

It’s
a
Concentrated
Market

The
10
largest
global
dividend
strategies
collectively
managed
€73.7
billion
in
assets
at
the
end
of
October
2023,
adding
up
to
a
market
share
of
60%.

“DWS
remains
a
dividend
powerhouse,
as
its
flagship
strategy,
DWS
Top
Dividende,
has
grown
into
a
€21.2
billion
behemoth,”
the
authors
say.

Approaches
are
not
Homogeneous

The
report
screen
the
funds
based
on
seven
factors:
style,
yield,
momentum,
quality,
volatility,
liquidity,
and
size.
While
most
global
dividend
funds
exhibit
a
value
bias
and
offer
a
relatively
high
yield,
the
approach
can
vary
significantly
for
active
funds.
Passive
income
funds
are
a
diverse
bunch
too:
a
mixture
of
developed
and
emerging
markets,
different
benchmarks,
weightings,
as
well
as
quality
and
ESG
screens.

Tech
exposure,
a
source
of
success
for
all
funds
in
previous
years
(apart
from
2022)
also
varies.
Asia-Pacific
ex
Japan
Equity
Income
funds
have
the
highest
tech
exposure,
over
20%,
followed
by
US
and
Global
Equity
Income
with
around
15%.
Europe
and
UK
categories
have
less
than
a
5%
weighting
each.

Different
approaches
and
exposures
mean
not
all
dividend
strategies
are
resilient
in
tough
times,
a
traditional
aspect
of
“defensive”
equity
income
portfolios.
Indeed,
the
report’s
authors
single
out
two
funds:
“M&G
Global
Dividend’s
performance
pattern,
driven
by
its
meaningful
exposure
to
cyclical
companies,
has
been
more
erratic
than
many
peers.
It
only
fared
better
than
the
broader
market
in
the
2022
fall.
Similarly,
Kempen
Global
High
Dividend’s
strong
value
tilt
proved
painful
during
the
coronavirus
pandemic,”
they
say.

Yields
vary
too,
with
US
strategies
offering
over
3%
and
the
UK,
Europe
and
Asia
funds
yielding
around
5%.

Methodology

The
dataset
comprises
active
and
passive
mutual
funds
and
exchange-traded
funds
across
the
Europe,
Africa,
and
Asia
(EAA)
Global
Equity
Income
Morningstar
Category.

This
article
was
compiled
by
James
Gard

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