Guinness
Global Equity Income Fund

• Why invest in the Guinness Global Equity Income Fund?
• The case for a global equity income fund
• Fund managers
• How do we run the Fund
• How do we construct the portfolio

Why invest in the Guinness Global Equity Income Fund?

The Fund is designed to provide investors with exposure to global equities through a high conviction, low turnover portfolio of consistently profitable dividend-paying companies.

Focus on consistent high return on capital

Consistent high return on capital is a good indication of a company’s ability to pay healthy dividends. The Fund invests in companies that are unusually consistent in generating returns on capital above their cost of capital.

Growth and income

Our approach to dividend investing is to focus on companies that can sustainably grow their dividend into the future, rather than simply looking for companies with a high dividend yield.

High conviction

The Fund typically invests in just 35 companies, with each company having an equal weighting. This provides a good balance between the benefits of diversification while also allowing each company to add meaningfully to performance. We don’t have a long tail of small positions and by definition we can never just ‘hug’ the benchmark index.

Fundamentally driven

We focus on ‘bottom-up’ stock selection rather than trying to make decisions based on an expected outlook for the world economy. We like to invest in good companies that have, in the short term, fallen out of favour, but that have previously shown an ability to weather most economic environments over time.

Low turnover

We prefer to invest over the long term. We also recognise the increased costs of trading in and out of companies unnecessarily. Typically we will hold a company in the portfolio for between 3 and 4 years.

Repeatable and independent

Ian Mortimer and Matthew Page have managed the Fund since launch. They have developed an investment process that is clear, robust, transparent, and scalable. Their approach filters out much of the noise and hype that surrounds companies to focus on the true signals that drive company valuations. By performing their own company research and analysis, using their own proprietary modelling systems, the managers try to avoid some of the behavioural biases associated with being unduly influenced by market sentiment.

The case for a global equity income fund

"Dividends make a gradual but potent contribution to long-term returns."

Dividend growers have outperformed for 30 years

Efficient use of cash is paramount in creating a well-run, profitable company that will thrive. Management discipline is required to maintain dividend growth and can be a signal of a well-run company. Using the example of the US stock market, the evidence for this is clear in the returns of dividend paying and non-dividend paying companies over the last forty years. It is also informative to note that companies that cut their dividend were the worst performing group over this period –illustrating that not all dividend-paying companies are created equal.

Power of compounding

For investors, reinvesting dividends delivers a significant proportion of your total return. And in periods of low growth this can be even more striking. The 1940s and 1970s, for example, were periods defined by some combination of sluggish economic growth, rising inflation, and high unemployment. During these decades dividends accounted for over 75% of the total returns of the S&P500.

Dividends can protect against inflation

Looking again at the US as an example, dividends in the US stock market have grown at an average 6% per year since the 1940s, while inflation grew at 4%. Investing in dividend-paying companies can protect against inflation over long periods: the income received in dividend payments has grown in line or at a higher rate than inflation.

Global diversity

The array of stocks around the world paying dividends has increased significantly in the last decade. We can now invest in a basket of dividend-paying companies that gives you genuine global diversity and exposure to a healthy range of industries in your portfolio. In contrast, just six companies now account for over 40% of all dividend payments in the UK.

Fund managers

How do we run the Fund?

“We don’t chase yield, we want capital and dividend growth.”

Although the Fund is designed to invest in dividend-paying companies, our starting point in selecting our investment universe is to identify companies with consistently high return on capital. Specifically we look at companies that have a return on capital of greater than 10% in each of the previous ten years.

Our analysis shows that companies with persistently high return on capital are highly likely to continue to do so in the future – meaning they will continue to create shareholder value.

Why 10% and why ten years?
10% return on capital…	10% is well above the average real cost of capital of 6%. This means companies who achieve this level are truly creating value for their shareholders.
…every year…	Consistency each year excludes highly cyclical companies or those with high but declining or volatile earnings.
…for ten years	Because business cycles tend to last less than ten years, the companies in our investible universe have shown they can weather most economic environments.

“It's a rare achievement for a company to meet our investment criteria and we think it shows a mark of genuine quality. And this is where our portfolio starts – consistent high return on capital.”

On average, only 3% of global listed companies achieve our threshold. We then exclude those less than $1 billion in size or with a debt to equity ratio greater than 1. This gives us a pool of around 400 companies from which to build our portfolio.

What about yield?

Companies that earn a consistent high return on capital often distribute a proportion of cash they create in the form of a dividend. In the Fund, however, we focus on those companies that can sustainably grow their dividend into the future.

From this pool we then select candidates for extended research on the basis of value and sentiment. In depth proprietary modelling of a company’s cash flow, capital budgeting and potential for dividend growth is combined with a subjective analysis of its business model to identify candidates for inclusion in the final portfolio.

By selecting companies from a broad range of industries, countries, and market capitalisation we aim to create a well-diversified portfolio which can provide a reasonable dividend yield and growing income stream at an attractive valuation relative to the broad market.

Sell discipline

It is often easier to find companies to buy that look cheap than it is to identify those companies you own which should be sold. We consider sell discipline as important as selecting companies for purchase and continuously monitor the companies we hold in the Fund. The six core reasons we may sell a company are outlined below.

1. The company fails to continue to meet our return on capital criteria
2. The valuation becomes too rich
3. The balance sheet becomes stretched
4. The dividend outlook or management policy to dividends changes unfavourably
5. The original investment thesis no longer holds
6. Yield contribution to the portfolio is insufficient

How do we construct the portfolio

The Guinness Global Equity Income Fund is a concentrated portfolio of around 35 equally weighted stocks. This provides a number of useful attributes:

1. It reduces stock-specific risk, as we will not be overweight in a small number of favourite companies.
2. We will not have a long tail of small holdings in the portfolio, which can be a distraction and a potential drag on performance.
3. It instills a strong sell discipline as we must typically sell a position in order to make way for a new one; and we must constantly assess the companies we own in the portfolio in comparison to the rest of the universe available to us.
4. We are truly index independent. All companies held are weighted equally without regard to their weighting in the benchmark index leading the portfolio to have a high active weight.

Fund	Global Equity Income Fund	Date (period end)	31.08.2018
Index	MSCI World Index	Fund Launch	31.12.2010
Sector	IA Global Equity Income	Basis	Total return, in GBP

Please remember that past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise as a result of market and currency movement, and you may not get back the amount originally invested.

Cumulative performance (%)
X class (1) (OCF: 1.24%)	Year-to-date	1 year	3 years	5 years	From launch
Fund	8.34	11.28	58.15	75.51	128.68
Index	9.12	12.13	65.89	93.71	139.61
Sector (2)	3.39	5.78	45.66	60.16	97.10

Annualised performance (%)
X class (1) (OCF: 1.24%)	1 year	3 years	5 years	10 years	From launch
Fund	11.28	16.49	11.90	0.00	11.39
Index	12.13	18.36	14.13	10.81	12.07
Sector (2)	5.78	13.34	9.87	8.91	9.25

Calendar year performance (%)
X class (1) (OCF: 1.24%)	2013	2014	2015	2016	2017
Fund	26.34	10.10	1.99	26.57	9.33
Index	24.32	11.46	4.87	28.24	11.80
Sector (2)	20.40	6.69	1.53	23.21	10.37

Discrete year performance to date (%)
12 months ending:	Aug-14	Aug-15	Aug-16	Aug-17	Aug-18
X Class (OCF: 1.24%) (1)	10.52	0.41	29.28	9.86	11.28
C Class (OCF: 1.99%)	9.70	-0.34	28.31	9.04	10.44
Index	12.79	3.52	25.20	18.09	12.13
Sector (2)	10.57	-0.56	20.58	14.14	5.78

Source: Financial Express, bid to bid basis, total return.

Notes

(1) The performance numbers displayed here are calculated in GBP (Sterling). Please note: The Fund's X class was launched on 15/02/2012. The performance shown is a simulation for X class performance being based on the actual performance of the Fund's E class, which has the same annual management charge as the X class, and has existed since the Fund's launch. The Fund's E class is denominated in USD but for the purposes of this performance data its performance is calculated in GBP. Hence the Fund's E Share class is used here to illustrate the performance of a GBP-based clean-fee (RDR-compliant) share class since the Fund's launch on 31.12.10.

(2) The performance of the IA Global Equity Income sector is based on the average of the highest fee share class of each constituent fund, e.g. C class for the Guinness Global Equity Income Fund, with an annual management fee of 1.5%.

Fact sheets
For information on the Fund’s current investments, please see the latest fact sheet:	English	French	German	Italian

Key facts
Launch date	31/12/2010
Fund managers (start date)	Ian Mortimer (31/12/2010) Matthew Page (31/12/2010)
Benchmark	MSCI World Index
IA sector	IA Global Equity Income
Structure	OEIC (UCITS)
Domicile	Ireland

Underlying currency	US Dollar
Pricing	Daily, forwards
Valuation	2300 Dublin time
Deal cut off time	1500 Dublin time
Administrator	Link Fund Administrators (Ireland) Ltd
Custodian	Brown Brothers Harriman
UK Reporting Fund status	Yes
ISA Eligible	Yes

Share classes

Class	OCF current	Max. Initial Charge	Min. Investment	ISIN	SEDOL	Bloomberg
Guinness Global Equity Income Fund C EUR Acc	1.84%	5%	€ 0	IE00BGHQF631	BGHQF63	GUGLECE ID
Guinness Global Equity Income Fund C EUR Dist	1.84%	5%	€ 0	IE00BDGV0183	BDGV018	GUGLCED ID
Guinness Global Equity Income Fund C GBP Acc	1.84%	5%	£0	IE00BVYPNV92	BVYPNV9	GUGCGBA ID
Guinness Global Equity Income Fund C GBP Dist	1.84%	5%	£0	IE00B3PB1722	B3PB172	GUGLEIC ID
Guinness Global Equity Income Fund C USD Acc	1.84%	5%	$0	IE00BVYPNW00	BVYPNW0	GUGCUSA ID
Guinness Global Equity Income Fund C USD Dist	1.84%	5%	$0	IE00B42XCP33	B42XCP3	GUGLEIB ID
Guinness Global Equity Income Fund D EUR Acc	1.19%	0%	€0	IE00BDGV0290	BDGV029	GUGLDEA ID
Guinness Global Equity Income Fund D EUR Dist	1.19%	0%	€ 0	IE00B66B5L40	B66B5L4	GUGLEID ID
Guinness Global Equity Income Fund D USD Dist	1.19%	0%	$0	IE00B3QG6N78	B3QG6N7	GUGLEIA ID
Guinness Global Equity Income Fund I USD Acc	0.99%	0%	$10,000,000	IE00BJBK7883	BJBK788	GUGEIMU ID
Guinness Global Equity Income Fund I USD Dist	0.99%	0%	$10,000,000	IE00BGK8P991	BGK8P99	GUGEIMD ID
Guinness Global Equity Income Fund Y EUR Acc	0.84%	5%	€ 0	IE00BVYPNZ31	BVYPNZ3	GUGYEUA ID
Guinness Global Equity Income Fund Y EUR Dist	0.84%	5%	€ 0	IE00BVYPP024	BVYPP02	GUGYEUD ID
Guinness Global Equity Income Fund Y GBP Acc	0.84%	5%	£0	IE00BVYPNY24	BVYPNY2	GUGYGBA ID
Guinness Global Equity Income Fund Y GBP Dist	0.84%	5%	£0	IE00BVYPP131	BVYPP13	GUGYGBD ID
Guinness Global Equity Income Fund Y USD Acc	0.84%	5%	$0	IE00BVYPNX17	BVYPNX1	GUGYUSA ID
Guinness Global Equity Income Fund Y USD Dist	0.84%	5%	$0	IE00BVYPP248	BVYPP24	GUGYUSD ID
Guinness Global Equity Income Fund Z GBP Dist	0.65%	0%	Closed	IE00B754QH41	B754QH4	GUGLEIZ ID