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Is this the resurrection of BlackBerry

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EU Supply gets commerce connected

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Dunelm could be a prime catch for bottom fishers

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Forterra In place to build success

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Everyman A picture of luxury cinema

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The Twitter conundrum

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PureCircle A sweet investment

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Time to bring Pets at Home out of the doghouse

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Trust ballast for income seekers

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Japan still the cheapest market

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Global income funds the obvious post brexit choice

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The winners and losers after Brexit

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Rothschild move for Alliance Trust

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Time to take another look at airlines

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Card Factory UKs leading card company is a gift

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New era for Saga as former backers jump ship

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Charts point to more glitter for gold

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The tide turns for China and emerging markets

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Telecom Plus a steady provider on the growth track

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Global income funds the obvious post BREXIT choice

Global income funds the obvious post BREXIT choice

Global income funds the obvious post BREXIT choice
UK equity income funds, which are a core holding for many UK investors, are subject to greater risks after the BREXIT vote. The majority of these funds hold a high proportion of capital in large cap stocks and these are the businesses most subject to uncertainty. Will they move operations, headquarters or even listings away from the UK? How long will it take until the leaders of these firms have any idea what the best course of action is? In the meantime, they are likely to put any major investment decisions regarding the UK on hold.

In any case, UK dividend distributions have risen steadily since the financial crisis, at a faster rate than profits. That cannot continue. So prospects for growth in income distributions from these funds are not great.

I now own no UK equity income funds but hold several global funds using similar styles and strategies, and there are plenty of choices out there, with initial dividend yields of 3-4%.

I last reviewed these funds last December (Issue 374). Now, as then, Scottish American Investment Trust (SAINTS) trades at a 5% premium to its net asset value, and if it were not for this I would own the trust and recommend its shares. Perhaps more turbulence in coming weeks will provide a buying opportunity.

Global IT yielding 5.7%

If you do want an investment trust, then consider the £1bn Murray International, yielding 5.7% and on a 1.8% discount to NAV. The longer-term record of manager Bruce Stout is good, but performance has been relatively poor over the past two years, largely because the fund has only modest US exposure (12%) and almost nothing in Japan. In its favour, it is more widely diversified and defensively managed than many “international” funds that slavishly follow benchmarks and therefore allocate around 50% of their equity holdings to the US.

Global equity funds post BREXIT
Global equity funds

The UK open-ended funds I favour remain Newton Global Income (yield 3.3%), Artemis Global Income (3.8%) and Invesco Perpetual Global Equity Income (3.5%).

As is usual in times when volatility rises, Newton has done well since last autumn. The managers remain broadly bearish and their portfolio is heavily invested in huge, solid global businesses that can weather any storm. In contrast, Artemis Global Income owns few such large-cap stocks and is more actively managed, with manager Jacob de Tusch-Lec having moved into more cyclical companies last autumn. This has held back performance in recent months, but previous such moves have been well-judged. Finally, Invesco Perpetual Global Equity Income applies the traditional “value” style used by many UK equity income managers.

In addition to the dividend growth argument, I believe sterling is likely to be weak for years as a result of BREXIT, which adds to the strong case for UK investors increasing their overseas exposure.

Chris Gilchrist, July 2016

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