Royal London Global Equity Income Fund

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).

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

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.

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.

Past performance is not a guide to future performance.

Source: Royal London Asset Management and Financial Express as at 31 March 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

Contact us

Email: bdsupport@rlam.co.uk

Telephone: 0203 272 5950

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