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Royal London Global Equity Income Fund

A differentiated approach

Overview

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A differentiated, proven and repeatable approach to global equity

The Global Equity team at Royal London Asset Management has spent 20 years identifying superior wealth creating stocks at attractive valuations which can be combined into balanced portfolios across different risk budgets.

This approach has proven resilient and powerful and has an idiosyncratic stock specific basis which provides a hard to replicate true differentiator.  It leads to alpha generating portfolios with high stock-specific risk and low factor risk, that have proven robust in multiple market environments over very long time periods. We consider the idiosyncratic and proprietary nature of our portfolio biases to be valuable to clients, repeatable and hard to replicate.

The Royal London Global Equity Income Fund aims to provide clients with attractive and consistent alpha relative to the MSCI World Index while maintaining a dividend yield that is at least 20% higher.

We seek to achieve this through our stock picking rather than betting on a particular macroeconomic or style event. In order to do this, we balance the fund by region, sector, and also by position in the Corporate Life Cycle (which we believe provides superior balancing of style factors, such as growth or value).

The team

The Royal London Global Equity Income Fund is run by Niko de Walden, who has managed the fund since its formation in 2020. Niko joined Royal London in 2014 as an Equity Analyst for the UK Equity Income team before becoming the co-manager of the UK Dividend Growth fund with Richard Marwood in 2017. Niko holds degree in Classics from Oxford University and is a CFA Charterholder. Niko is part of the Global Equity team of 11, where seven fund managers and four analysts work together as generalists to drive the investment engine. They narrow down the investment universe from 5000+ stocks to a selection of 250 stocks with strong wealth creation for their stage of Life Cycle, where in-depth valuation analysis has been conducted.

Investment case

We believe that equities represent an opportunity for investors to participate in the significant long-term wealth created by individual corporations globally. With over 5,000 quoted companies spanning the world to choose from, we ignore the noise, embrace technology and drive unbiased decision making, all while ensuring a truly global perspective.

The Royal London Global Equity Income Strategy aims to:

  • Provide a core solution to asset owners looking for consistent and persistent above market returns with a yield premium of 20%
  • Deliver high information ratios from active, idiosyncratic, stock-selection risk
  • Provide low style and other factor risks relative to benchmark

Why invest in the Royal London Global Equity Income Fund?

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The investment universe

Our process and proprietary data tools allow us to efficiently and informatively consider the entire 5000+ stock universe when searching for investment ideas. We believe combining the processing power of technology with the flexible and forward looking insight of our experienced team is the most effective way to exploit the vast global equity universe of opportunities.

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Proven stock picking

We use a differentiated stock picking approach, using our Life Cycle framework, which allows us to ask a different set of questions for companies depending on which of the five stages of the Life Cycle they sit in.

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Well balanced

We want our stock picking to drive the performance of the fund rather than style or macro factors. In order to do this, we diversify the fund by Life Cycle, region and sector. This provides a style balance to our portfolios that we believe is not easily found elsewhere.

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Consistent performance

The global equity team has outperformed in 18 of the 21 years in their longest running strategy.

Shareholder Wealth Creation over dividend yield

We believe that focusing on companies’ ability to create wealth, rather than on dividends alone, enables better dividend sustainability and growth, and superior total returns.

Strong Wealth Creation at any stage of the Life Cycle leads to growth in long-term cashflows which leads to dividend growth and sustainability.

Advantaged framework

The Life Cycle framework is embedded into all parts of our investment process.

  • Quantitative tools Life Cycle specific metrics and scorecards help us analyse with speed the vast global equity universe
  • Research Life Cycle specific questions frame our analysis of the ‘Wealth Creation Test’
  • Portfolio construction through the Corporate Life Cycle enables superior style balance to other frameworks such as Region and Sector. Finally, it enables superior portfolio analytics and attribution, where we measure our performance and risk metrics for each Life Cycle stage relative to its cohort to more accurately assess whether we are adding alpha at each stage of the Life Cycle.

Our approach

The Corporate Life Cycle

Our Corporate Life Cycle framework is the theoretical and practical foundation of our approach.  As well as informing the path of our stock analysis it also acts as a framework for balanced portfolio construction. We consider that corporate returns on productive capital and growth tend to progress along a Life Cycle and every company can be located economically in one of five Corporate Life Cycle categories, from early-stage accelerators and growth compounders to more mature returners and turnarounds.

Corporate returns on productive capital and growth tend to progress along a Life Cycle. Every company can be located economically in a Life Cycle category.

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Portfolio characteristics and holdings are subject to change without notice. This does not constitute an investment recommendation. Source: RLAM, for illustrative purposes only.

The key insight from the Corporate Life Cycle Framework is that it is entirely complete. You can have a successful investment at any point in the Corporate Life Cycle at any time; the drivers are very different depending on what stage of the Life Cycle the company is in. For example, a Compounding business best creates wealth via maintaining high returns on productive capital and growing; however, a Turnaround should look to shrink weak assets, and improve its returns.

Shareholder Wealth Creation

Shareholder Wealth Creation is a forward-looking factor that is under-analysed by the market, is hard to do well, yet we believe it is a powerful long-term driver of corporate performance. Our Corporate Life Cycle framework helps us to identify which companies are pursuing the optimal strategies, business model and management incentives given their specific Life Cycle category, environment/social/governance considerations and external market/competitive contexts. We call this the Shareholder Wealth Creation Test.

Valuation

Our Life Cycle classification framework and Shareholder Wealth Creation analysis identifies and prioritises a superior sub-set of global stock opportunities from which we do further valuation work to identify suitable portfolio candidates across all our Global Equity strategies. 

Responsibly active

As a forward-looking factor, ESG risks and opportunities are fully integrated into our assessment of Shareholder Wealth Creation. In essence, companies with strong governance and shareholder aligned incentives, with socially and environmentally useful products and services and limited negative environmental externalities, are more likely to get a higher score in the Shareholder Wealth Creation Assessment. ESG analysis is an explicit part of the scorecard informing the overall Shareholder Wealth Creation Assessment of every company.

We use investor-led engagement to participate in two-way dialogue with portfolio constituents to enhance our insights, hold management accountable to their commitments, communicate our clients' expectations and engage for change when necessary. Such engagement is a key determinant of our stock evaluations and voting process.

Income diversification and portfolio construction

The Global Equity Income Strategy invests in a fully balanced portfolio of 60-80 stocks, with market capitalisations of above $1.5bn, which our process has identified as having the most attractive combination of Shareholder Wealth Creation and relative valuation. 

From a dividend perspective we seek to achieve our 20%+ yield premium by having a higher yield than the benchmark for each stage of the Life Cycle. This means that our Early Life Cycle Accelerator and Compounder stocks, will typically have a lower starting yield than the fund as a whole, but faster dividend growth as they compound their cashflows, whilst later stages such as Mature and Turnaround will likely have higher starting yields, due to those companies having lower valuations and fewer wealth creating investments to spend their cash on. This is very different from Global Income funds which own a ‘portfolio of income stocks’ all yielding a slight premium to the index.

The result of our approach to balancing the portfolio across the Corporate Life Cycle stages is high idiosyncratic and low common factor and style risk. In our view, this tends to insulate the portfolio from the worst effects of market rotations, allowing our stock specific insights to drive returns.

Performance

Image shows performance for Global Equity Income Fund to end January 2024

Past performance is not a guide to future performance.

Source: Royal London Asset Management and Financial Express as at 31 January 2024. Figures are bid to bid, net income reinvested, net of fees for the M Inc share class. Please note that the fund performance and index is based on midday returns and sector is based on close of business returns. The inception date of the RL Global Equity Income Fund is 25 February 2020.

The latest performance for all share classes of Royal London Global Equity Income Fund can be found in our fund centre.

View fund performance

Fund facts

Key fund information

Benchmark MSCI World ND Total Return
IA sector IA Global Equity Income Sector
Launch date 25 February 2020
Minimum investment M Inc £100,000
Fund managment fee (FMF) 0.72%
Historic yield 2.70%

Source: Royal London Asset Management as at 30 September 2023

Dealing information

Dealing deadline 12:00
Valuation 12:00; benchmark is valued at close of business
Settlement T+3

Fund prices

The latest fund price for all share classes of Royal London Global Equity Income Fund can be found in our fund centre.

View fund prices 

Documents

Contact us

Email: institutional@rlam.co.uk

Telephone: 0207 506 6500

View all contact information for the Institutional Business Development Team

Investment risks

Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. 

Concentration risk

The price of funds that invest in a reduced number of holdings, sectors, or geographical areas may be more heavily affected by events that influence the stockmarket and therefore more volatile. 

EPM techniques

The fund may engage in EPM techniques including holdings of derivative instruments. Whilst intended to reduce risk, the use of these instruments may expose the strategy to increased
price volatility.

Exchange rate risk

Changes in currency exchange rates may affect the value of your investment.

Liquidity risk

In difficult market conditions the value of certain fund investments may be difficult to value and harder to sell, or sell at a fair price, resulting in unpredictable falls in the value of your holding.

Emerging Markets risk

Investing in Emerging Markets may provide the potential for greater rewards but carries greater risk due to the possibility of high volatility, low liquidity, currency fluctuations, the adverse
effect of social, political, and economic instability, weak supervisory structures, and accounting standards.

Counterparty risk

The insolvency of any institutions providing services such as safekeeping of assets or acting as
counterparty to derivatives or other instruments, may expose the strategy to financial loss.

Charges from capital risk

Charges are taken from the capital of the Fund. Whilst this increases the yield, it also has the effect of reducing the potential for capital growth.