With 45 per cent of Australia's 2014 dividends flowing from the big banks and BHP, yield-hungry investors should start diversifying overseas, says Capital Group.
Speaking to InvestorDaily, Capital Group Australia senior vice president Paul Hennessy said investors should complement their local equity exposure with offshore companies that are growing their dividends.
“We’re not saying Australians are doing it wrong,” Mr Hennessy said.
“But maybe they should be complementing their portfolios and reducing the risk by going into global equities that have an income bias,” he said.
Mr Hennessy is currently shopping around an Australian version of the Capital Group World Dividend Growers fund to wholesale and institutional investors.
The locally domiciled fund currently has $15 million in funds under management (along with $2 million in a hedged version), with one superannuation fund providing the bulk of the FUM.
The two Australian funds have also been granted a ‘recommended’ rating by retail research house Lonsec, Mr Hennessy said.
The strategy has a three-year history overseas, but is also linked to a fund in the US that has a 35-year track record.
“What we’re looking for is stocks that pay strong dividends over time,” Mr Hennessy said.
Importantly, the fund is not a high-yield strategy in its own right, he added.
“It’s actually saying: ‘Let’s look for companies that have a combination of existing yield and we think a growing yield over time’,” Mr Hennessy said.
“It’s that latter part that [quantitative analysts] or passive entities can’t replicate. It’s all about the quality of management.”
As well as returning a better yield than the MSCI World index, the strategy has returned 10.3 per cent on an annualised basis between 1989 and 2014, Mr Hennessy said.
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