Fidelity Global Dividend: March 2024 fund update

• Daniel Roberts is a highly experienced income investor and uses a clear and effective process

• A global equity income fund with a valuation focus, which could work well alongside US-dominated or global growth funds

• Global income funds have struggled in recent years and underperformed global growth funds, however, this fund’s long-term performance has been strong

• This fund features on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The Fidelity Global Dividend fund aims to deliver long-term income and growth, with a focus on providing some shelter in weaker markets. Daniel Roberts’ unconstrained investment approach allows him to invest anywhere in the world, but he tends to favour large companies from developed markets. He won’t compromise on quality and is mindful of valuation – how much a company’s share price should be compared with its prospects. The fund could provide international diversification to an income-focused investment portfolio and work well alongside ‘growth’ orientated funds.

Manager

Daniel Roberts is a seasoned investor with 21 years of experience under his belt. Prior to joining Fidelity in 2011, he worked at Gartmore and Aviva Investors running UK and European income funds. He has managed this fund since launch in January 2012, looking for the same type of companies as his previous funds but with a much richer hunting ground - the whole world.

Roberts stepped down from managing the Fidelity Global Enhanced Income fund on 30 April 2022, which means he can dedicate his time to the Global Dividend fund. Fred Sykes and Jochen Breuer, who were appointed co-managers of Global Enhanced Income in April 2021, continue to run the fund using the existing investment process.

Roberts is the sole manager of this fund and carries out a lot of his own analysis, but he can make use of the large pool of Fidelity analysts available to him, totalling over 170 globally. He also benefits from the idea sharing and challenge provided by Fidelity’s Equity Income team.

Process

Roberts entered the investment industry around the time of the Dot-com crash, so he’s seen first-hand the risk of companies’ share prices rising too far without enough earnings growth support, making them ‘overvalued’. It means he pays close attention to valuations and makes sure he doesn’t buy shares at a price he believes is above the company’s future growth potential.

Roberts’ approach focuses on individual company analysis, paying close attention to their financial accounts to ensure the company dividends are sustainable. He also assesses how a company has fared during different market conditions, looking to identify predictable revenue streams and resilience. The manager favours companies with simple business models, sensible management teams and healthy balance sheets whilst avoiding companies with too much debt.

The process whittles down a universe of 3,000 companies to a portfolio of between 40-60 holdings. These tend to be larger companies, at a size of $5bn and above. While the manager can invest in higher-risk smaller companies, he tends not to make use of this flexibility. European companies make up around 45% of the fund, which includes exposure to areas like the France and Germany, while almost 15% is invested in the UK. Around 30% is invested in the US, but this is much less than the benchmark. Roberts can also invest in higher-risk emerging markets. There’s a broad range of themes in the fund with a focus on more defensive sectors like consumer staples and healthcare.

Roberts focuses on the long-term sustainability and growth of dividends, rather than high dividends now that may not grow further or be cut. This means there is no minimum yield (income) requirement for any single investment and the manager invests in some companies with a yield lower than the market if there’s an expectation it will grow over time. The manager targets a yield of at least 25% more than the benchmark’s yield.

Over the last 12 months, Roberts only made one new investment in US payroll provider Paychex. Roberts believes it’s one of the highest growth companies in the fund and has also been resilient in economic uncertainty. The manager also added to a number of existing investments including US energy company CMS Energy.

In contrast, Roberts sold a number of investments. German pharmaceutical company Bayer was sold despite only being added to the fund in 2022. Roberts tends to hold companies for at least 3 years but he sold the company after the emergence of ongoing litigation. Japanese pharmaceutical company Astellas Pharma was also sold as a key drugs patent is due to expire in 2026, which could allow competitors to copy the drug. Roberts invested in the company for more than 11 years, and it performed well over this time.

Please note charges can be taken from capital, which can increase the yield but reduces the potential for capital growth. Roberts has the flexibility to use derivatives in this fund, which adds risk if used.

Culture

Fidelity was founded in 1969 and is a global investment manager. The company remains privately owned, which means its managers can focus on the long-term interests of investors rather than short-term shareholder demands. That’s helped the firm develop an investment-focused culture, where investment ideas are openly discussed and debated, and information is shared amongst the firm’s various teams.

The company's scale means investment teams are well-resourced and fund managers are well-incentivised. We think it's positive that all Fidelity fund managers are incentivised based on the longer-term performance of their funds. We think this aligns their interests with those of investors.

ESG integration

Fidelity has committed to improving its approach to ESG in recent years. The firm developed a structured engagement program which allows it to be more systematic in its engagement on environmental and social issues, became involved in more collaborative engagement initiatives and introduced ESG data into fund managers’ quarterly reviews to raise awareness of ESG issues. The firm also bolstered its dedicated ESG team, which writes regular ESG reports on companies held by Fidelity fund managers. The firm votes where it is possible to do so and quarterly voting reports are posted online, complete with rationales for votes against management and abstentions.

In June 2019, Fidelity launched its own proprietary ESG ratings tool. It scores thousands of companies based on their ESG credentials on a forward-looking basis, with investment analysts tasked with the job of ensuring the ratings are up to date. The ratings system was later updated to include an assessment of each company’s ability to manage negative externalities. Fidelity also developed a climate rating which highlights companies where engagement is most necessary if the firm is to achieve its aim to halve portfolio emissions by 2030 and reach net zero by 2050.

While Fidelity has made strides forward at the firm level, we don’t think this has fully fed through to the fund level. Although there is plenty of ESG information available to all Fidelity fund managers, we’re not yet convinced they all put it to full use.

Cost

The fund is available for an annual ongoing charge of 0.93%. The HL platform fee of up to 0.45% per year also applies.

Performance

The fund has performed better than the average fund in the IA Global Equity Income sector since launch in 2012, growing 234.61%* compared with 183.34% for the sector. Our analysis suggests this is down to Roberts’ stock picking ability and being exposed to the right sectors. However, investing less in the US compared with the benchmark has been a headwind. Remember past performance is not a guide to future returns.

In recent years, global equity income funds haven’t tended to perform as well as the broader global market. The US market, the technology sector, as well as other high-growth areas have performed well. These areas don’t pay much in the way of dividends though, so many global income funds don’t have as much invested and have missed out on some of the gains made. That said, many have focused on achieving a sustainable and growing income.

Over the past year the fund returned 10.29% compared with 9.43% for the sector average. Roberts’ conservative approach and focus on high-quality companies means the fund performs differently to its peers at times. Historically, it’s performed better than peers in falling markets, but has tended to marginally lag them in a rising market.

British information and analytics company RELX was the best performing company over the past 12 months. Management has expressed confidence in how AI can develop their current analytical tools, and the company released positive performance results in the second half of last year. Dutch information and technology company Wolters Kluwer also contributed to performance. It reported strong results using AI to improve projects that are currently in use.

On the other hand, American pharmaceutical company Bristol Myers Squibb and Swiss pharmaceutical company Roche were weaker over the last 12 months. They both performed strongly in 2022 but some healthcare companies fell out of favour in 2023. Bristol Myers Squibb released a weaker set of performance results in the first half of 2023 and management therefore lowered earnings expectations, but Roberts believes it’s attractively valued and the share price doesn’t account for promising future drugs. Roche also had weaker than expected results from new drugs which didn’t offset lower demand for its Covid treatments. Roberts also believes it has an attractive share price for the sector leader in research and development.

Over the longer term we believe this fund benefits from a well-resourced manager with the potential to deliver good returns for investors, but this isn’t guaranteed. The fund is likely to lag the broader global market when the US and high-growth sectors are performing well, but the reverse is also true. We expect it to provide more resilient returns when markets are volatile.

The manager has a good record of growing the fund’s income over time, and it currently yields 2.51% but remember income is variable and can change over time. Yields are not a reliable indicator of future income.