In her latest fund review, Juliet Schooling Latter, research director at FundCalibre notes that we often forget to consider the importance of looking at total returns from dividends and capital growth – which is where diversification comes into play.
Income-orientated products are available in most equity sectors nowadays – but are those who simply gravitate towards the highest-yielding funds missing a trick?
The Investment Association (IA) launched the global equity income sector in 2011 to cater for a growing number of dividend-focused funds, offering a greater regional level of diversification.
The sector has been a big success, with almost £30 billion in funds under management across more than 50 funds*.
One of the main pitches to UK-based investors is that global equity income funds offer a great opportunity to diversify away from the big beasts of the UK stock market that – love them or hate them – are important dividend payers.
This issue was brought into the headlines in the aftermath of the tragic events of BP’s Gulf of Mexico disaster in 2010, after which the company’s dividend was suspended.
These global portfolios tend to offer a growthier alternative to UK equity income stocks. The peer group pays less than UK equity income funds – something which is completely understandable considering the yield on the MSCI World index is 1.56% but the FTSE All Share pays 3.13%**.
What people often forget to consider is the importance of looking at total returns from dividends and capital growth. Here is where diversification comes into play, with the average IA Global Equity Income fund returning more than 60% (161.8% vs. 100.1%) over the IA UK Equity Income sector over the past 10 years***.
More recently it has been a bit more of a challenge for global equity income funds to keep up with the market. Since the US war with Iran started in late-February 2026, the MSCI ACWI has returned over 6%, a stark difference from the 1.1% for the FTSE All World High Dividend Yield****.
In short, if you were sticking with the high yielders and ignoring growthier names – the market has been showing you a clean set of heels.
Aegon Global Equity Income fund is one of the few to keep up with the MSCI in this period. Managed by Mark Peden, the high conviction strategy invests in 40-50 high quality companies across the globe which have strong balance sheets, steady cash flows and consistent earnings.
A key feature of the process is the use of yield “buckets”, which helps balance the portfolio across different types of dividend exposure: a core allocation sits in a 2–4% yield range, complemented by lower-yielding structural growth companies and higher-yielding defensive holdings.
The resulting portfolio is deliberately concentrated enough for conviction, but diversified enough to ensure balance across styles and cycles, with an average holding period of around three years.
Right now the fund has nearly 40% in the growthier bucket – reflecting the flexibility to pivot to those names when needs be; 15% in the value (defensive) bucket, while the remaining 45% is in the core segment.
Three key differences to their peers
Mark believes the resilient performance of the portfolio in the current market conditions can be attributed to three factors.
Firstly, he believes many of his peers have made the move to be long Europe/short US – the theory being that the former would be the winner should we see an end to US exceptionalism – a move which has not played out.
Secondly, they hold around 15% in Asia, citing allocations in tech markets like Korea and Taiwan. He says: “I am surprised people don’t use Asia as much as it offers a lot for funds like ourselves in terms of premium yields, dividend growth and good capital upside.”
Mark says many in the sector have been focused on headline yields – something he feels is a dangerous strategy, adding that higher yields in certain sectors are actually a reason to mis-trust a company.
The final differentiator is a lower allocation to classic defensives. He says the fund has a lower allocation to consumer staples and healthcare, adding that some funds have as much as 25% in consumer staples alone.
“There are consumer staples with dividend yields trading at 3.5-4%, which, when the market is yielding 1.5%, is attractive for an income manager. The problem we have with consumer staples is they are struggling to grow their top lines.
What would you rather own: a food company growing at 2.5-3% or a TSMC or Microsoft, growing top lines in excess of 15-20%? It is an easy choice,” he says.
A diversified portfolio amid an encouraging earnings outlook
Mark says the global equity income sector was initially borne out of having UK equity income funds/managers transfer their skills – with income and value being interlinked as a result.
“That is a misconception – income investing is not value investing, it can be a subset of it. The problem with equity market valuations at the moment is you’re not getting a lot of absolute income and if you pivot to those sectors with greater dividends there is pain in terms of being left behind by the market,” he says.
Mark says the portfolio currently has around 30% in technology names, giving them those growth and dividend growth characteristics; this is then offset by having almost a quarter of the portfolio in financials to deliver the premium income.
Mark says this is an earnings driven bull market and the earnings outlook is encouraging. He says the one issue he has noted recently is the announcement by Google asking investors to fund their capital expenditure and whether this is a broader concern for the hyperscalers.
That said, he remains very confident in the infrastructure layer of the technology trade, such as chipmaker TSMC. He says this could see them pivot from hyperscalers to the infrastructure players – adding that even if the likes of Google manage to raise money from investors it is likely to be good news for these infrastructure technology names.
Having returned 238.3% over 10 years*** and yielding 1.9%^, we believe this fund is well-positioned to continue to deliver strong returns in rising markets, while also managing downturns better than others.
Combined with a soft-core style that sidesteps both deep value traps and speculative growth, this is a dependable option for investors seeking a steady, quality-led global equity allocation.
*Source: Investment Association, full figures at April 2026
**Source: FE fundinfo, 29 May 2026
***Source: FE Analytics, total returns in pounds sterling, 10 June 2016 to 12 June 2026
****Source: FE Analytics, total returns in pounds sterling, 27 February 2026 to 12 June 2026
^Source: fund factsheet at 30 April 2026
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Juliet’s views are her own and do not constitute financial advice.
Main image: question, mark-fletcher-brown-nN5L5GXKFz8-unsplash
