Dividend or income strategies seem to be an appropriate investment strategy for long-term investors since these strategies try in general to harvest and distribute dividend yields which are above the average dividend yield of a given market.

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The investor can use these dividend payments either to reinvest them into their portfolio or use them as an additional stream of income. Therefore, it might be interesting to analyze how important income strategies are for European investors measured by the market share of assets under management of the respective mutual funds and ETFs compared to plain-vanilla mutual funds and ETFs investing in the same market(s).

Methodology

To do this we have chosen the universes equity Europe, equity global, equity U.K. and equity U.S. to evaluate the importance of income strategies for European investors. The single universes are built from the plain-vanilla (all shares) classifications (Equity Europe, Equity Global, Equity U.K., and Equity) plus the respective small- and mid-cap classifications and the respective income classifications. This means each universe is build from three single Lipper global classifications including all respective funds registered for sales in at least one European country.

Results

The general overall results lead to the assumption that dividend/income strategies only play a minor role for European investors since the market share of these strategies declined from 9.54% at the end of December 2019 to 6.20% at the end of April 2024. The same pattern seems to be somewhat true for funds investing in the small- and mid-cap segments of the respective markets.

Equity Europe

The market share of the Lipper classification Equity Europe Income follows the general trend as the market share declined from 7.61% at the end of December 2019 to 5.24% as of April 30, 2024. Nevertheless, there was a small increase in market share over the course of 2022 as investors tried to diversify their income streams during the interest rate hiking cycle by the central banks.

Graph 1: Market Share of Assets Under Management for European Equity Funds

Source: LSEG Lipper

Equity Global

The market share of the Lipper classification Equity Global Income follows the general trend as the market share declined from 8.36% as of December 31, 2019, to 6.53% at the end of April 2024. Similar to equity Europe, there was a small increase in market share over the course of 2022 as investors tried to diversify their income streams during the interest rate hiking cycle by the central banks.

Graph 2: Market Share of Assets Under Management for Global Equity Funds

Source: LSEG Lipper

Equity U.K.

Opposite to the other universes dividend/income strategies do play a significant role for European investors investing in U.K. equities, since the market share of dividend/income strategies stands at 18.79% in this universe at the end of April 2024. Nevertheless, the pattern of the market share for the Lipper classification Equity U.K. Income follows the general trend as the market share declines from 25.10% at the end of December 2019 to 18.79% as of April 30, 2024. In addition, it is noteworthy that there was no increase in market share over the course of 2022.

Graph 3: Market Share of Assets Under Management for UK Equity Funds

Source: LSEG Lipper

Equity U.S.

The market share of the Lipper classification Equity U.S. Income follows the general trend as the market share declined from 2.82% at the end of December 2019 to 2.10% as of April 30, 2024. Nevertheless, there was a small increase in market share over the course of 2022 as investors tried to diversify their income streams during the interest rate hiking cycle by the central banks.

Graph 4: Market Share of Assets Under Management for U.S. Equity Funds

Source: LSEG Lipper

Summary

Except for the U.K., where dividend/income strategies play a significant role in the equity portion of portfolios of investors, the results of this analysis lead to the conclusion that European investors do not use dividend/income strategies to diversify their regular income streams.

From my point of view, the findings of this analysis are surprising as I had thought that dividend-based strategies would play a more important role because these strategies were also known as “widows and orphans strategies” in the past, because of the, in many cases, relatively attractive risk/return profiles of these strategies. More generally speaking, since the dividend yield is one of the selection criteria for value funds, one may expect that these strategies are more commonly used by investors. In addition, quantitative dividend-based strategies are considered as factor strategies, which means that these strategies have shown that they are able to deliver superior returns over the long-term, which should foster the usage of dividend/income strategies by long-term investors.

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