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Since the launch of the Schroder Global Equity Income Fund in May 2007, global markets have been through a difficult period.
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Fundamentally, nothing has changed in the way the manager looks for companies. Sonja Schemmann is focused on businesses with strong balance sheets and good cash flows, and in particular those that pay above average dividends.
She believes companies with management teams that are committed to offering dividends to shareholders tend to be highly disciplined. In other words, management which can generate sustainable earnings and pay some of it in dividends now and reinvest the rest into the business to generate future earnings and further dividends should yield long term rewards for investors.
The main reason for the fund’s poor start is primarily down to its large exposure to the financials sector. This currently makes up 26% of the fund of which around 17% is in banks. The credit crisis has had a major impact on the banking industry and the share prices of many well regarded banks have fallen significantly over the last six months. However, Sonja Schemmann believes this sector could be bottoming out and she is now seeing some banks in reasonably good shape, attractively valued and offering potential upside from current levels.
Elsewhere, the fund’s exposure to the energy sector has been proving beneficial on the back of strong energy prices. Additionally, the fund’s exposure to continental Europe and Asia (ex Japan) has contributed positively to performance this year. There has been an improvement in performance relative to other global funds in the sector over the last few months.
The fund aims to pay a net yield around 3.5% a year with the prospect of long term capital growth. It could be a solid global equity income proposition, particularly in an environment where we are battling against inflation and there are prospects of lower interest rates. Despite initial struggles, we remain hopeful for the fund’s long term prospects and it remains on the Wealth 150 list of our favourite funds in each sector.
» Key Features of the Schroder Global Equity Income Fund
Fund research is provided by Hargreaves Lansdown. Hargreaves Lansdown is an independent broker offering unit trust, stockbroking and other pension and investment services. No news or research item is a personal recommendation to deal.