AVIVA GLOBAL EQUITY INCOME FUND: A fund ‘for all seasons’

As the fund’s name implies, Aviva Global Equity Income’s focus is on delivering dividends to investors. It is a task the fund performs very well and the manager is confident that future rising dividend payments can be achieved despite the difficult economic conditions.

Over the past year, the £206m fund has generated income of just under 6.2p, with shares trading around £2.64.

In the previous 12 months to the end of September 2021, the equivalent income paid to investors was 5.38 pence per share. Aviva says annual income has grown by an average of 7.8 percent over the past five years.

Manager Richard Saldanha manages the fund based on finding income for investors. His view is that if the right dividend-friendly companies are bought, capital returns will “take care of themselves.”

Over the past five years, a total fund return of 61 percent has been achieved. Over the same period, the average global equity income fund has returned 37 percent.

Saldanha’s attitude to dividends is flexible. He will not take a company into his portfolio if it does not pay dividends to shareholders. That approach excludes technology giants such as Amazon and Meta.

But he’s quite happy to buy shares in other tech companies — such as Visa and Microsoft — which are now paying growing dividends, albeit small in terms of returns.

Saldanha says, “Twenty years ago technology companies didn’t pay dividends.

‘That made them a no-go for income investors. But companies like Visa and Microsoft are breaking the norm.’

He adds, “Visa is a great company that pays shareholders an income equivalent to about 0.8 percent per annum.

A small figure, but the dividend grows by 20 percent per year. It’s an attractive investment with a company at the heart of the e-commerce boom.

“The same can be said of Microsoft, which has the potential to deliver double-digit revenue growth over time.”

Such low-yielding investments – with the potential to generate growing income for the fund – are complemented by holdings in companies that generate higher income but offer less room for dividend growth.

These include National Grid in the UK (return of 5 percent), Swiss pharmaceutical company Novartis (return of 3.6 percent) and German telecom giant Deutsche Telekom (3.3 percent).

A third category of income stocks includes companies that offer a mix of dividend growth (anything between 5 and 15 percent per year) and dividend yields of 2 to 4 percent. Among them is US consumer goods giant Procter & Gamble, which has enjoyed 66 years of dividend growth.

Saldanha acknowledges that economic conditions – high interest rates and raging inflation – are difficult for many companies, but he believes he has built a fund for ‘all seasons’.

He says: “The fund offers dividend resilience, which is paramount in a time of high inflation. Its breadth in terms of geographical spread also means it is not overly dependent on particular sectors for its dividends.” Most UK equity funds depend on commodity producers, oil companies and banks for their dividends.

Aviva Global Equity Income distributes quarterly income. The total annual fund cost is 0.87 percent.

Over the past five years, JPM Global Equity Income, Guinness Global Equity Income and Liontrust Global Dividend have been the global equity income funds with better overall performance records.