GUINNESS EUROPEAN EQUITY INCOME: Forgotten fund turning gems into £100m moneymaker

After more than 11 years, Guinness European Equity Income is emerging from the shadows.

Having been left to lie fallow as a result of the success of its sister fund Guinness Global Equity Income, it is beginning to gain some traction with investors and wealth managers.

The fund, valued at a meagre £8 million a year ago, has now broken through £50 million. And co-fund manager Will James is confident it won’t be long before it gets to £100million – maybe by the end of this year, but more likely within the next 12 months.

To put these numbers into perspective, Global Equity Income, launched three years before European Equity Income, now has £4.9 billion of assets under its wing.

‘The fund has momentum,’ insists James. ‘It’s six times bigger than it was a year ago and it’s in growth mode. It’s rather encouraging.’

James, who joined Nicholas Edwards on the fund in early 2024, believes one of the key drivers has been an improvement in the wider investment case for Europe.

He says: ‘As an investment proposition, Europe struggled to compete with US exceptionalism for many years. The result was that most investors’ portfolios were underweight in Europe.

‘But that US exceptionalism has now unwound, resulting in the appeal of dividend-friendly European companies being brought to a wider investor audience.’

The fund’s focus is on identifying European companies that are undervalued but which have strong balance sheets and cash flows largely impervious to the state of the economic backdrop. It side-steps businesses which have lots of debt.

All these demands reduce an investible universe from 1,400 down to 200. Like other Guinness funds, European Equity Income then builds its portfolio around just 30 stocks, with holdings having broadly equal weightings.

If a new company is brought into the fund, one has to be pushed out. The fund’s exposure is determined by the companies it buys, not a view on the relative attractiveness of individual markets. This year, stakes in two businesses have been sold: Swiss-Swedish electrical engineering giant ABB and Finnish IT software company Tietoevry. They were replaced by energy technical specialist SPIE and Dutch-based BE Semiconductor Industries.

James says: ‘SPIE is generating an attractive dividend, and its work is essential in improving Europe’s electrical infrastructure.

‘BE Semiconductor Industries is a specialist in hybrid bonding, a process which enables semiconductors to be built that are more powerful and efficient than ever before.’

Fund changes are infrequent – two holdings were sold last year, three the year before.

Eight stocks have been in the fund from the word go, including Finnish industrial company Konecranes, Norwegian fish farm specialist Salmar, London-listed Unilever and French consumer staples business Danone.

The fund’s performance numbers stack up. Over the past one, three and five years it has outperformed the average for its peer group. Over five years, returns of 71 per cent compare with 56 per cent for the average European fund.

Income is paid twice yearly and it has been in growth mode since 2020. An annual dividend last year of £6.21 a share compares with £3.13 in 2020.

Later this month James and Edwards will meet financial experts in Bournemouth, Bristol and Leicester – all part of a mission to get the fund to £100 million.

Annual fund charges are reasonable at 0.89 per cent and the annual dividend is around 3.6 per cent.