The European equity asset manager is seeking to offer exposure to high dividend stocks.

London-based Argonaut Capital is launching an income-focused European equity fund, subject to regulatory approval.

The Argonaut European Income Opportunities Fund will aim to achieve a yield far higher than the overall index by targeting higher yielding companies with sustainable dividends.

Argonaut’s current model portfolio has a gross yield of about 5.7 per cent, compared to the 3.6 per cent yield for the MSCI Europe excluding UK Index. 

“Our investment process, which is central to all Argonaut funds, focuses on understanding corporate earnings trends and balance sheet analysis,” said Greg Bennett, lead manager on the fund. “This will not only assist us in identifying companies with the ability to pay dividends higher than expectations, what we refer to as ‘dividend surprise’, but also assist us in avoiding yield traps.”

Bennett believes looking to Europe for dividend exposure stocks helps to avoid the current crowded trade in UK-listed income generators. He noted that there are 75 UK equity income funds going after a limited number of stocks offering high dividends. For example, he said, 80 per cent of the top 10 funds have AstraZeneca within the top 10 holdings.

“While there are far fewer dedicated European equity income funds, there are approximately twice the number of stocks yielding more than 4 per cent in the MSCI Europe ex UK Index than the FTSE 350. At a time when more than 60 per cent of outstanding European sovereign and corporate debt is negative yielding, high dividend equities offer a useful, liquid and alternative source of income,” he said.