In a world of low or no interest rates on fixed income investments, stock dividends are emerging as the key income stream for investors.
Fidelity’s Dan Roberts has been looking for good dividend-paying companies for nearly 15 years now. He currently runs the Fidelity Global Dividend Fund, which was launched in January 2012 and is available as a Sicav incorporated in Luxembourg.
The investment style pursued by Roberts is a conservative one. It is based on the identification of global companies offering good prospects of maintaining or increasing their dividends at attractive valuations and holding on to these stocks as they grow.
Given the volatility of equity markets during the past year, the performance has not been too bad. By the end of July, the US dollar units in the fund had posted 4.6% growth for the year to date, 9.1% growth over the past year and 24.8% growth for the past three years.
In fact, the current volatility in the financial markets has proved a key selling point for the fund, according to Roberts. “If you think about the last 18 months as a case in point, the market fell by about 20% peak to trough, and this fund fell about 10%. These are both dollar numbers,” he says.
“We tend to hold up very well in those bouts of market volatility. Then, if we can broadly keep up in a rising market, we do much better across the full cycle.
“It is a much better journey for the end unitholder, and a much less stressful one,” Roberts says.
Relative returns
In the current environment, where there is a long list of political, macroeconomic and interest rate risks driving volatility in the markets, and where equity valuations are quite high, Roberts believes the key is to take a longer-term view.
“On an absolute basis, I think it’s difficult to argue that the market is anything other than expensive but, clearly, there’s a relative argument at play here. If other asset classes are trading at negative yields and offering a poor risk/return profile then equities compare very well.”
The valuation metrics Roberts employs in his stock selection, which compare one company’s multiples with others in the same sector, point to prospective returns over the medium term in the mid-single digits annually.
“I’m talking five to seven years plus here,” he says. “That’s often too long a timescale for a lot of people, but for those kind of metrics to provide any kind of useful information, you need to think of it over that kind of time period. If these equities give you 5-6%, maybe that’s better than you would get from any other asset class,” he says.
However, Roberts notes that financial advisers do need to make clients aware that should they need to draw on their capital over the short term, any allocation to equities needs to be carefully considered.
Stock in trade
When it comes to investing in stocks, Roberts has serious provenance. He began his investment career in 2001 as an equity analyst for M&G. In 2002, he became a portfolio manager at Invesco, before moving to Aviva as a UK equity income portfolio manager in 2003. In 2009, he joined Gartmore, where he also managed equity income funds.
Roberts joined Fidelity in November 2011, and began managing the Global Dividend Fund from its inception on 30 January 2012.
The fund holds around 50 stocks from different industries and geographies, and all have big market capitalisation. It has assets under management of $4.4bn. The MSCI All Countries World Index is its benchmark
Top of the fund’s current holdings is healthcare giant Johnson & Johnson and Dutch information firm RELX Group, formerly Reed Elsevier. Other household names among the top holdings are Procter & Gamble, Pfizer Group, GlaxoSmithKline and General Electric.
Indeed, by sector, consumer staples, healthcare and industrials top the list, while in terms of regions it’s all North America, Europe and the UK.
In a year when emerging markets have been the outstanding performer and sectors like healthcare have underperformed, Roberts admits the current profile of the fund does not look ideal at first glance.
“From a pure market selection viewpoint, we’ve been in the wrong places this year but our performance has been very pleasing against that kind of backdrop. We are still ahead of the benchmark and a little bit ahead of the peer group, so that hopefully shows there is some good stock selection underneath,” he says.
