IGD - IGD: This High-Yielding Global Equity CEF Is In A Position To Sustain Its Yield

Summary

• Voya Global Equity Dividend and Premium Opportunity Fund’s assets are majorly invested in ICT, industrial, financial, and healthcare sectors, and its aggressive portfolio reshuffling strategies play a critical role.
• IGD invests only in developed equity markets, which provide much more stability and creditworthiness than the high-growth emerging economies.
• IGD generates high yield on a consistent basis, and its average annual total return, even though it is almost equal to or lower than its yield, is still quite high.
• IGD is trading at a discount of more than 9 percent, despite delivering a strong yield on a consistent basis, and also an average total return in double digits.

~ by Snehasish Chaudhuri, MBA (Finance).

Voya Global Equity Dividend and Premium Opportunity Fund ( IGD ) is a closed-end equity mutual fund ("CEF") that primarily invests in dividend-paying stocks of companies having a market capitalization of at least $1 billion. The fund has a fully diversified portfolio , with more than 60 percent of its assets invested in four sectors - industrial, healthcare, financial, and technology. IGD also invests a part of its $512 million assets under management in call options on selected indices, individual securities, and exchange-traded funds ("ETFs"). Its primary investment objective is to offer attractive dividend yields to its investors, which it has been able to achieve successfully. IGD has an expense ratio of 1 percent, is priced at $5.4, and is currently trading at a discount of 9.2 percent.

IGD Generates High Yield Through Investing in Dividend-Paying Stocks

Voya Global Equity Dividend and Premium Opportunity Fund was launched by Voya Investment Management LLC. At that time, the fund was known as ING Global Equity Dividend and Premium Opportunity Fund. This global equity fund is currently co-managed by NNIP Advisors B.V. and Voya Investments, LLC. IGD benchmarks the performance of its portfolio against the MSCI World Index and the Chicago Board Options Exchange BuyWrite Monthly Index. This fund employs fundamental analysis to pick stocks from this benchmark index. Almost two-thirds of IGD's assets were invested in various stocks in the stock markets of the United States, while the remaining third of its assets were invested in established and matured equity markets of Japan, the United Kingdom, Australia, Switzerland, France, Canada, Spain, Netherlands, etc.

Voya Global Equity Dividend and Premium Opportunity Fund was formed in 2005 and has been paying monthly dividends since then. The fund recorded an annual average yield of 9.2 percent during the past 6 years. Yield during 2022 was a little low at 8.65 percent. The annual average total return is lower than that of its yield, implying there has been little or negative price growth. Between 2016 and 2022, IGD recorded an annual average total return of almost 7.25 percent. However, the IGD fund has a high turnover ratio of 64 percent, meaning stocks are reshuffled during portfolio revision on a regular basis. This has been done in order to continuously reach out to the higher-dividend-paying stocks. As a result, the expense ratio is quite high at 0.97 percent.

IGD's Price Performance was Unsatisfactory During the Past Five Years

Healthcare stocks are very much in favor for the fund managers of Voya Global Equity Dividend and Premium Opportunity Fund, as six out of its top ten stakes are healthcare companies. Significant investments in healthcare sector included pharmaceutical giants such as Johnson & Johnson ( JNJ ), Merck & Co., Inc. ( MRK ), Bristol-Myers Squibb Co. ( BMY ), and Pfizer Inc. ( PFE ); and established biotechnology firms like AbbVie Inc. ( ABBV ), Amgen Inc. ( AMGN ), and Gilead Sciences, Inc. ( GILD ). Within the technology and industrial space, IGD invested significantly in Cisco Systems, Inc. ( CSCO ) and Emerson Electric Co. ( EMR ) - not typical information technology stocks. All these stocks recorded positive price growth during the past five years. Barring BMY, GILD, and CSCO, all other stocks recorded a price growth in excess of 20 percent.

Communication stocks like AT&T Inc. ( T ), Verizon Communications Inc. ( VZ ), 3M Company ( MMM ); and financial stocks like Zurich Insurance Group AG ( ZURVY ), and Sumitomo Mitsui Financial Group, Inc. ( SMFG ) are also included among its top 25 investments. Here, it is to be noted that this fund has stayed away from investing in the major U.S.-based banking stocks. During the past 5 years, barring ZURVY, all other stocks generated price loss. Unfortunately, Voya Global Equity Dividend and Premium Opportunity Fund recorded a price loss of almost 28.5 percent over the past 5 years. However, during the current year, this portfolio of investments had a positive growth of almost 2 percent, despite the fact that only SMFG was able to generate a price growth in excess of 2 percent. IGD also invested in iShares Russell 1000 Value ETF ( IWD ).

This resulted primarily due to two reasons: a) the portfolio's emphasis on dividend rather than price growth; and b) the performance of communication, and financial stocks, which performed quite opposite to that of the healthcare and technology stocks. Voya Global Equity Dividend and Premium Opportunity Fund include stocks of a good number of energy firms such as Marathon Petroleum Corp. ( MPC ), Air Products and Chemicals, Inc. ( APD ), Duke Energy Corp. ( DUK ), and Phillips 66 ( PSX ), although the fund has invested 9 percent of its assets in energy stocks. Other top holdings of IGD included stocks of Altria Group, Inc. ( MO ), PepsiCo, Inc. ( PEP ), McDonald's Corp. ( MCD ), and Philip Morris International Inc. ( PM ). These stocks pay strong dividends, which again enabled this fund to achieve its investment objective of generating a high yield.

Investment Thesis

A significant proportion of IGD's assets is invested in technology, industrial, financial, and healthcare sectors. I have strong hopes about these four sectors and believe that these are the sectors with maximum growth potential in the coming decade. The core healthcare and industrial portfolio of IGD, also had a satisfactory performance during the past five years. IGD's aggressive portfolio reshuffling strategies, too, play a critical role in its success. The fund has an asset base of more than $500 million and generated a very high yield over the years. Due to all these, Voya Global Equity Dividend and Premium Opportunity Fund seems to be in a good position to sustain a high yield over the long run.

IGD has an objective of generating stable current income and has been able to successfully achieve that objective. The fund invests only in equity markets of developed economies, which provide much more stability and creditworthiness than the high-growth emerging economies. IGD is trading at a discount of more than 9 percent, despite delivering such a strong yield on a consistent basis. Average annual total return, even though it is almost equal or lower than its yield, is still quite high.

In my opinion, this is a very good option for income-seeking investors. However, investors need to hold their investments in Voya Global Equity Dividend and Premium Opportunity Fund over a longer period of time.

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