STANDARD Life Investments will today launch a new fund for investors looking for income from companies outside the UK.
The Edinburgh-based group said the European Equity Income fund was being introduced in response to private investor demand for new sources of dividends.
Claire Marshall, investment director at Standard Life Investments (SLI), told The Scotsman th
at the current climate had forced investors to look further afield for income, with Europe an obvious source of diversification. "Outside the UK, Europe is an attractive place for dividends and a more high yielding market than the US," she said.
The fund, managed by Will James, will invest in 40 to 70 high-yielding stocks from across the continent. There may also be some exposure to convertibles – bonds that can be exchanged for shares – cash and fixed interest.
James said the advantage for the fund, which will pay income quarterly, was the extra diversification offered in Europe.
"There is more choice for income and that is where we see the opportunity," he explained. "It is a good time for people wanting a return on their cash to get more income with potential for capital appreciation."
James will invest primarily in "cash-disciplined companies" paying sustainable dividends. There will also be some exposure to companies deemed unstable but considered by SLI to be under-priced by the market.
Most of the portfolio is under wraps but Spanish telecoms group Telefonica and German stock exchange Deutsche Borse will feature.
Telefonica is typical of the stocks likely to make up the bulk of the fund, said James.
"Its dividend yield is sustainable and potentially growing, it has a strong balance sheet and is committed to its dividend policy," he added.
Other telecoms companies will figure strongly in the fund due to their strong cashflows and balance sheets, but banks will be less prominent after a series of dividend cuts in recent months.
The fund will aim to provide a yield of 15 per cent over that provided by the FTSE Europe Ex-UK index as well as some capital growth over the long-term. SLI's European equity team already runs a growth fund, which has produced returns of 38 per cent since its launch in 1998.
Allianz Global Investors has also introduced a European Equity Income fund this week and further launches are likely in the coming months, predicted Adrian Lowcock, senior investment adviser at IFA Bestinvest.
"We are going to see more of this, not only in Europe," said Lowcock. "Investors can widen their sphere on where they get income from because funds are going back to basics and investing in businesses with strong fundamentals."
