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Four Best European High-Dividend Equity Mutual Funds
Variable income funds

Four Best European High-Dividend Equity Mutual Funds

We analyse four high performance equity funds from Metzler, BlackRock, Schroders and DWS, and their investment strategies.
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7 JUN, 2021

By Constanza Ramos

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Equities are still interesting and attractive to investors, due to their wide universe of companies and strategies available. In this article, thanks to the collaboration of Metzler, BlackRock, Schroders and DWS, we will analyse four of the Best European High-Dividend Equity Mutual Funds.

ISINFUNDRent.* 5 year an.
IE00BYY02962Metzler European Dividend Sustainability Fund7,2%
LU0563471787BGF European Equity Income Fund7,28%
LU0134337129Schroders ISF European Equity Yield6,89%
LU0781238000DWS Invest II European Top Dividend6,88%

Oliver Schmidt, Deputy Head of the team Equities and responsible Portfolio Manager at Metzler AM.

Dividend strategy rethought - a successful concept for future capital market challenges

A dividend world that was believed to be safe has become cracked in some parts, also in terms of perspective. These changes are compounded by a looming interest rate reversal and increasing concerns about high inflation. An increasingly demanding society as well as a tightened regulatory framework is forcing companies to reduce corporate CO2 emissions at a faster pace.

These intensifying drivers will have a significant impact on the attractiveness of some sectors over the coming years. Sectors that have so far stood securely for dividend payments will disappear. At the same time, new, fast-growing business models will emerge as a result of the changed investment flows, which will replace the classic dividend stocks. All the more decisive for the success of a strategy will be factors that have not received much attention in many dividend strategies to date.

For us, these include a strong focus on dividend growth, the integration of companies outside European standard indices and a clear commitment to sustainability. An active management approach and, in particular, a consistent integration of ESG factors are therefore advantageous in our view, especially when investing in dividend stocks, because the business model determines who is among the winners. 

With the Metzler European Dividend Sustainability, we offer investors the opportunity to take these factors, which will become increasingly important in the future, into account as part of a dividend strategy and to participate in attractive European business models with above-average dividend growth. The investment universe comprises European large caps with a progressive dividend policy; outstanding small caps can be added.

In principle, we favour investments in companies with high transparency in terms of management and development, which can offer reliable and sustainable profitability in combination with a solid balance sheet and a sustainably rising dividend. In contrast to some classic dividend strategies, we deliberately avoid "dividend traps" – companies with unattractive business models that are characterized solely by an optically high dividend yield. In addition to the focus on growth aspects, the investment approach aims for broad diversification across sectors and countries. 

In addition to financial indicators, we systematically integrate ESG aspects throughout the entire investment process. We attach particular importance to the topics of good governance, fair management of workforce and CO2 reduction. The aim is to minimize substantial losses due to reputational damage as far as possible and to identify additional alpha sources at an early stage, thus enhancing performance. 

Furthermore, our approach offers the option to react tactically to cyclical shifts. In the context of the current economic recovery, we have gradually shifted the portfolio into more dynamic stocks. In doing so, we increased our holdings in financials and commodities at the expense of defensive consumer stocks. As "risk-conscious stock pickers", a balanced portfolio that is broadly invested in different risk premiums is very important to us.

Thanks to the combination of style loyalty and the early anticipation of new, structural trends such as ESG, the portfolio is well prepared for the challenging decade on the capital market to come.

Andreas Zoellinger & Brian Hall Portfolio Managers at Black Rock

In order to achieve these goals, we look at the portfolio in 3 buckets:

European equities have performed strongly over the last 12 months, and we think markets will remain underpinned by the robust global economic recovery, supportive monetary and fiscal policy, and attractive valuations relative to other regions and asset classes. European equities are international in their revenue pools, and we believe Europe’s companies addressing the needs of the global consumer will continue to benefit as excess savings are put to work.

Furthermore, with vaccination rates increasing substantially across the continent, and spending from the landmark EU Recovery fund due to begin in H2 2021, we have put capital to work in domestically focused businesses set to benefit from these trends.

While we’re seeing higher inflation coming through, much is related to higher commodity prices and supply chain issues. We expect these effects will be transitory and believe that central banks will remain accommodative for the foreseeable future.  In this environment we believe the fund’s focus on resilient, conservatively managed businesses, its attractive yield, and growing absolute distributions continue to be highly relevant for clients.

Andrew Evans y Andrew Lyddon, European Equity Managers, Schroders

A value approach to investing in European equities

We combine advanced yield selection techniques and our own fundamental analysis of company accounts to identify the most attractive investment opportunities. The aim is to detect positive and sustainable dividend trends in companies. In other words, we look not only for high yields at the time of purchase, but also for solid dividend growth prospects.

Against this backdrop, we divide the investment process into three stages. In the first, idea generation or idea search, we analyse which companies are undervalued and trade at a low price relative to their long-term earnings potential. In the second stage, we apply fundamental analysis; we rely on long-term historical performance data of comparable companies, apply a model built by the management team, backed by more than a decade of experience, and finally try to forecast the potential direction of the stock.

Finally, in the third stage, we carry out risk management, to ensure that the companies in which we potentially invest are financially sound to meet short and long-term challenges, as well as quality in their management. To assess the strength of the company's management team, we attend meetings, conferences and earnings presentations. To this we add our own convictions, developed to balance the weight of each company in the portfolio and manage concentration risk.

Denise Kissner, Senior Product Specialist Active Equity & Liquid Real Assets at DWS

While the broad European stock market experienced dividend cuts in 2020 on a level with the financial crisis of 2008/09, our dividend strategy DWS Invest II European Top Dividend as almost completely immune to this trend and distributed 3.5% to our investors. The stability of dividend income is primarily due to our long-term investment approach, which is focused on quality companies. A solid balance sheet, stable cash flows and a sustainable dividend policy are of great importance to us, especially during an economic downturn.

Regarding the upcoming dividend season in Europe we see solid growth after a very disappointing 2020, in which many companies have cut their dividend for regulatory and/or pandemic related reasons. We are expecting an increase in dividend payments of roughly 13% for our entire portfolio. The highest dividend growth rates are coming from the materials sector, which has currently also the highest weighting in the fund, followed by financials and consumer staples. The more cyclical sectors like industrials and consumer discretionary are underweighted versus the broad equity market. From a country allocation point of view German equities count for almost 23 percent, followed by Great Britain and France.

The strategy stands out with an above average return versus its peers and lower volatility. The fund is awarded with 5 stars out of 5 by Morningstar.

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