Distributors take dividends to dizzying heights

High dividend funds have drawn considerable attention from distributors, according to Nicolas Simar, head of value strategies at ING IM. The ING global high dividend fund, initially designed for the domestic market, was domiciled in Luxembourg in mid-2002 to allow cross border distribution, gathering ?600m since that time. The Euro high dividend fund “was so popular that it raised ?2.5bn,” and it had to be closed during most of 2005 for liquidity issues. European and US high dividend funds were also more recently added to the ING Luxembourg value strategies family. Fifty per cent of the global fund’s assets are distributed through third-parties, private banks and fund selectors, while the percentage goes up to 60 per cent for the Euro and Europe funds, estimates Mr Simar. “We try to sell our funds in all the different European countries, but that’s sometimes a bit difficult. For example, the US high yield dividend, launched a year ago, is still not registered in all the countries because of problems with the Ucits III regulations,” he says. It is ING’s view that value outperforms growth in the long run, says Mr Simar. He explains that a strong value period always alternates with a strong growth period, separated by a sort of “style neutral” period. “The next strong growth period will occur only in 2007-2008,” he forecasts. “The real added value of high dividend equity products is when the market is down, or when it moves sideways,” says Mr Simar. There are risks of course. “If the market is really strong, these value funds will really lag the overall market. And in years like 1999, when the market was up 30 per cent, a high dividend fund was up only 15 per cent. This year, the market is up 25 per cent and we are only up 22 per cent”. Looking at the future, he says: “Our best case scenario is that total return on equities will average 6-7 per cent in the next two to three years. The dividend yield of our portfolio is 4.5 per cent. This means we need only 3 to 4 per cent of capital gains to outperform the market”.