Mark Dampier: 'Neptune Global Income is a rarity in global funds: one that actually buys from whole world'

Manager George Boyd-Bowman has invested in Japan, the US, Europe and the UK

I have considerable sympathy for newcomers to fund investment when they are confronted by the names of these funds. The investment world can seem an intimidating, complicated place, and titles such as Special Situations, Growth, Alpha and Focus (which tell you very little about what a fund actually does) don't do anything to dispel this notion.

One of my favourite tips is to look under the bonnet of any investment vehicle you are considering buying. Check the geographic breakdown if it is an international fund, identify the sectors that seem over- or under-represented within the portfolio, and try to get an understanding of the fund manager's philosophy.

For example, some managers may have a cautious outlook and will be running the fund accordingly; if you are optimistic, you may wish to consider an alternative manager whose outlook is more aligned with your own. That said, holding a mix of both cautiously and adventurously managed funds will provide greater diversification within a portfolio.

The Investment Association attempts to group funds into sectors, which can lead to the misconception that all funds in one sector do the same thing. This was recently reinforced by a conversation I had with George Boyd-Bowman, manager of Neptune Global Income. In buying a fund in this area, investors might assume they would have a relatively low exposure to the UK. However, Mr Boyd-Bowman found two-thirds of the 36 funds in the sector have considerably more invested in the UK than the 7 per cent weight that it represents in the MSCI World Index. Indeed, the average global income fund holds 18.8 per cent in the UK, 11 per cent more than the benchmark weight.

Funds tend to rely on the UK, North America and continental Europe for their income stream. While this gives them a greater universe from which to choose stocks, compared with a fund focused on the UK, there is an extremely high correlation in terms of performance between these countries. For example, you can bet that any big downturn in the US will be matched or even exceeded across the UK and Europe.

There seems to be an aversion to relying on income generated by companies in Japan and the emerging markets. Yet valuations are much more supportive in some of these areas than they are in the developed world and the Japanese dividend story is particularly interesting. The country introduced a corporate governance code earlier this year that I believe will lead to a greater number of its companies putting shareholders' interests first and focusing on paying dividends.

The Japanese stock market has always been orientated to capital growth, and income has historically accounted for little of the total returns. But I suspect that the country's ageing population, and interest rates stuck at zero, have led to a greater demand for higher, more sustainable levels of income. Indeed, the same factors are affecting most developed markets. Interestingly, Mr Boyd-Bowman has allocated 24 per cent of Neptune Global Income to stocks in Japan – a much larger weighting than any of his peers. That is not to say he has neglected the more traditional hunting grounds for income seekers – 33 per cent of the portfolio is invested in the US, with 24 per cent and 10 per cent across Europe and the UK respectively.

While these factors do not necessarily mean the Neptune fund will show a clean pair of heels to its rivals, they do show Mr Boyd-Bowman is doing something different to his peers. They also highlight why it is important for investors buying into a fund to have a deeper understanding of its style and make-up.

As most professional investors know, buying when the going gets tough and selling at the point of maximum optimism is often a highly lucrative strategy.

In my view, understanding how a fund might perform in various market conditions is vital if an investor is to have genuine conviction in a fund manager. That makes holding on in a more difficult phase, or even topping up, a much easier task.