London-based specialist European equity asset manager Argonaut Capital plans to launch an income-focused European equity fund, subject to FCA approval.
The Argonaut European Income Opportunities Fund will aim to achieve a yield far higher than the overall index, through selectively investing in higher yielding companies with sustainable dividends.
Argonaut’s current model portfolio has a gross yield of about 5.7 per cent, far in excess of the 3.6 per cent yield for the MSCI Europe ex UK Index.
Greg Bennett (pictured) will be the lead manager on the European Income Opportunities Fund, supported by Argonaut’s team of analysts, as well as group founder Barry Norris.
“Our investment process, which is central to all Argonaut funds, focuses on understanding corporate earnings trends and balance sheet analysis,” says Bennett. “This will not only assist us in identifying companies with the ability to pay dividends higher than expectations, what we refer to as ‘dividend surprise’, but also assist us in avoiding yield traps.”
Bennett believes looking to Europe for dividend exposure stocks also helps to avoid the current crowded trade in UK-listed income generators.
“There are 75 UK equity income funds all chasing a limited number of stocks offering high dividends. In the top 10 funds – which constitute 60 per cent of sector assets – there is a high concentration of the large household pharma and oil major names. For example, 80 per cent of the top 10 funds have AstraZeneca within the top 10 holdings – while GSK, Royal Dutch Shell and BP also feature prominently,” Bennett adds.
“While there are far fewer dedicated European equity income funds, there are approximately twice the number of stocks yielding more than 4 per cent in the MSCI Europe ex UK Index than the FTSE 350.
“At a time when more than 60 per cent of outstanding European sovereign and corporate debt is negative yielding; high dividend equities offer a useful, liquid and alternative source of income.”