GUINNESS GLOBAL EQUITY INCOME Y GBP

Investment Process

The management team begin their investment process by identifying good quality companies with consistently high returns on capital, ideally over 10% in each of the previous ten years. This they believe this a good marker as it only captures companies which have weathered different economic cycles, and whose returns have remained consistently high even through recessionary periods. On average only 3% of the 16,000 global listed companies achieve this threshold. This number is further reduced by the team excluding companies less than $1billion in size. This gives them a pool of around 400 companies from which to build the portfolio. From this universe the managers take a bottom-up investment approach. They use their own models to analyse areas such as a company’s cash flow, capital budgeting, valuation, and potential for dividend growth. They then combine this with a subjective analysis of the company’s business model to identify stocks for inclusion in the final portfolio. They avoid companies with large amounts of debt, in declining industries or with an unsustainable dividend. They aim to select companies from a broad range of industries, countries, and market value to create a well-diversified portfolio. This they hope will provide a reasonable dividend yield and growing income stream at an attractive valuation relative to the broad market. Roughly five new stocks enter the portfolio every year and five exit. The main reasons for selling holdings include when the company fails to continue to meet the fund’s return on capital criteria, the dividend outlook or management policy to dividends changes unfavourably, or the yield contribution to the portfolio is insufficient.