Invesco Select: Global Equity Income 22 March 2022
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by Invesco Select: Global Equity Income. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
Invesco Select Global Equity Income’s (IVPG) investment objective is to deliver long-term capital appreciation in addition to an attractive and growing level of income. For the ten years to the end of 2019, the shape and style and process of this global equity portfolio has been broadly the same, with a relatively concentrated number of holdings (typically around 50) and a strong value bias. However, with a new team taking responsibility in January 2020, there has come a new approach (see Portfolio).
Invesco Select Global Equity Income, under Stephen Anness, aims to have a balanced approach to portfolio construction, avoiding excessive style or factor risks, which should mean IVPG will have the ability to outperform in a wider range of market environments. Stephen is lead manager and decision maker for the trust and is supported by a team of five analysts and fund managers, who together look across global equity markets to find companies which pay a healthy dividend now, but are also able to reinvest cashflows in their businesses at high rates of return to grow their dividends faster than the market in the medium term.
Whilst stock picking is valuation-led, this is by no means a ‘value’ investment process. According to Morningstar statistics, relative to the benchmark, IVPG is underweight value and growth, but overweight core (56.2% vs 38.7%).
Aside from allowing a relatively concentrated portfolio (around 40 holdings), IVPG also embraces other structural aspects that investment trusts can potentially use to deliver superior returns for shareholders. These include Gearing (currently 9%), a ‘zero tolerance’ discount policy which has been used to minimise discount volatility, and the use of capital to support the Dividend. This last aspect helped IVPG’s board achieve its aim of at least maintaining the previous year’s dividend, delivering a dividend increase for the financial year ending May 2022 of 0.7% despite a c. 43% fall in revenue generation.
As an income focussed investment trust, IVPG’s dividend is undeniably an important consideration for prospective investors, and in our view the ability and willingness of the board to support the dividend through capital payments is an attraction. Based on the current share price, the dividend of 7.1p equates to a dividend yield of c. 3.3%. This is lower than the AIC Global Equity Income peer group’s 3.8% simple average dividend yield, but potentially reflects the managers’ central thesis that investing for a high yield today isn’t necessarily the best route to high total returns. We discussed this precise issue recently here.
Whilst the dividend for the year ending May 2021 was only 55% covered by revenues, global dividends have bounced back since then, so we would expect cover to be better in the current financial year. Should IVPG’s managers achieve their aim of investing in companies which are in a position to grow their dividend faster than the market, revenue growth should start to improve and potentially give the board an opportunity to grow dividend payments at a higher rate in the future.
The concentrated portfolio and stock picking approach means that IVPG is a differentiated trust in the Global Equity Income sector. We believe that, thanks to the pragmatic investment process employed by the team, performance will not be influenced by a single investment factor such as growth or value, and IVPG is therefore more likely to deliver outperformance in a wider range of market conditions. As such it merits attention for those who wish to take a long term, global approach to equity income.
- Stephen Anness has a good long-term track record of outperforming his benchmark for the open-ended funds he has run in the past
- Balanced approach, with a focus on dividend growth, offers differentiated exposure within AIC Global Equity Income sector
- ‘Zero-tolerance’ approach to discount means the trust is much more liquid than its size would suggest
- Lower initial yield than that of peer group
- New team have a short track record as managers of an investment trust
- Gearing can exacerbate the downside