TQ Invest Heroes and Zeroes of UK Equity Income Funds
16 Mar 2010
UK Equity Funds continues to be one of the top sector choices for investors, Nigel Walker, Head of Research at TQ Invest, offers his pick of the Hero funds and highlights the one fund he feels belongs on the Zero list. To invest in any of these funds simply click on the fund name and add them to your basket.
UK equity income funds continue to be a mainstay of investor's portfolios. There are two main reasons for this, firstly there is immediate familiarity with the companies held within such funds something investors typically prefer and secondly low interest rates have meant that returns from traditional deposit account are so low that investors have had to look elsewhere. As income returns from the sector are in the region of 4%pa, so this makes an appealing alternative.
Equity Income Hero funds
This has been managed by the well regarded Robin Geffen since launch in 2002. The funds initial approach is to identify favoured sectors, followed by stock research to then focus on large and medium-sized companies operating within the selected sectors. The manager then applies a highly disciplined approach investing equally in just 33 strong companies. All will have a global presence and be companies which dominate in their relevant sectors. This concentrated portfolio breaks down into three elements; 11 stocks with a five-year record of growing dividends, 11 stocks that are short-term holdings reflecting the sector views and 11 recovery stocks which have an identifiable catalyst for change. Typically no more than 30% will be invested in one industry sector, with up to 20% invested in overseas equities.
This fund has been co-managed by Adrian Frost and Adrian Gosden since October 2003. Under their management the fund has shown solid performance, as a result of their research process which amongst other issues takes into account the level and direction of a company's cash flow, its sustainability and related issues such as the impact of the management team. The managers also have access to an in-house research tool too. Stock weightings are determined by conviction but will not represent more than 5% of the fund value. The managers have the flexibility to invest up to 10% in corporate bonds, 20% in European equities and 30% in smaller UK companies, which ensures greater flexibility than many of its peer funds.
By doggedly sticking to his contrarian approach, so Neil Woodford has outperformed the FTSE All Share Index in 17 of the 20 calendar years under his management (Source :Standard & Poors, October 2009). This is now the largest of all unit trusts, approaching £10 billion in size, however Neil Woodford has yet to find that it is difficult to make changes to the portfolio due to its size, although it does mean that this is far less nimble than peer funds. He continues to favour a defensive approach, with a emphasis to utility and healthcare companies. This focus upon companies which he believes have dependable earnings leads him to have over 50% of his portfolio accounted for by the top 10 holdings, so this is a much more concentrated fund than most others.
Equity Income Zero fund
Henderson New Star Higher income has had a torrid time in recent years. The high-profile manager did not produce the anticipated performance, consequently there was change of manager, however, the fund has experienced considerable outflows, which makes it harder to manage. There are more attractive funds to consider in the UK equity income sector, ones which have been much more consistent in producing good results for investors.
Click here to view our full Heroes and Zeroes fund list.
Past performance is not a reliable guide for future returns. The value of your investments and any income from them can fall as well as rise and you may get back less that you invested.
