Fidelity Investments in April plans to join the growing global dividend crowd.
The Fidelity Global Income Fund will seek to provide more yield than the MSCI All-Country World Index by investing in dividend-paying equities both in developed and emerging markets. The index had a yield of 2.31% as of the end of January, according to MSCI.
The fund will be managed by Ramona Persaud. She was named a co-manager of the $9 billion Fidelity Global Equity Income Fund (FEQIX) at the end of October.
Dividend stocks have been in vogue since the financial crisis sent interest rates, and subsequently bond yields, to record low levels. Equity income funds took in about $33 billion last year as investors were forced to look beyond the usual suspects of money market funds and Treasuries for yield.
"As the population continues to age, we expect there may be increased demand for income-oriented solutions. Therefore, we believe the Fidelity Global Equity Income Fund may interest equity income oriented investors and intermediaries seeking to pursue their equity income objectives through global investments in companies located in U.S. and non-U.S. markets," said Nicole Goodnow, spokeswoman for Fidelity.
The growing interest has some concerned that U.S. dividend stocks are starting to become expensive, or at least fairly valued. Mutual fund firms are responding by offering more-diversified income strategies such as global or multiasset funds.
“There's enough investor interest to keep dividend equity strategies moving,” said Jeff Tjornehoj, a senior research analyst at Lipper Inc. “But the strategies have to be broad enough to home in on income production and not be constrained to U.S. blue chips,” he said.
The number of equity funds that look outside the U.S. for yields is growing rapidly. There now are 24 equity income funds that invest at least 25% of their assets outside of the U.S. and 30 funds that invest at least 75%, with the majority of those funds being launched in the last few years, according to Lipper.
Steve O'Hara, principal at CLA Financial Advisors LLC, prefers dividend strategies with a wide mandate, not only because they can go where the best opportunities are, but also because they can go where the least risk is.
“It's kind of speaking the language clients want to hear right now,” he said. “They like the sense of defense.”
While Fidelity is focusing on a global dividend strategy, other firms are focusing on multiasset income funds to satisfy investors' need for yield.
BlackRock Inc. launched the
BlackRock Multi-Asset Income Fund (BAICX) last month, for example, and the $2.6 billion JPMorgan Income Builder Fund (JNBAX) has more than doubled in size over the last year, thanks to $1.5 billion of inflows.
Multiasset funds invest in a wide range of income-producing securities, including dividend-paying equities, master limited partnerships, real estate investment trusts, emerging-markets debt and high-yield bonds.
“A lot of investors want income, but don't have the confidence to build their own diversified income portfolio, so those fill that void,” Mr. Tjornehoj said.
The focus on income is expected to continue as long as interest rates remain low, which the Federal Reserve has said will continue until at least 2014. Low interest rates have neutered the income aspects of traditional savings vehicles like money market funds and certificates of deposit.
