AstraZeneca, Centrica and Imperial Tobacco are the highest-conviction plays among UK Equity Income managers, according to FE Trustnet
These companies crop up in more than half of managers’ top-10 holdings in some cases, even though they are not among the top-10 largest constituents of the FTSE 100 index.
Unsurprisingly, the 20 most popular stocks in the sector are all members of the FTSE 100; however, the 10 largest companies in the UK are not all popular equity income stocks.
Most popular UK Equity Income stocks
Source: FE Analytics
||Number of funds
|Royla Dutch Shell
|British American Tobacco
|Legal & General
One of the most popular holdings is AstraZeneca, despite the fact it is not one of the 10 largest companies in the UK.
All in all, 46 of the 99 funds in the IMA UK Equity Income sector count AstraZeneca as a top-10 holding.
The likes of M&G Dividend
and Threadneedle UK Equity Income
– both of which have more than £1bn of assets under management – count the multi-national pharmaceutical company as a top-10 holding.
However, the highest-profile admirer of the company is Neil Woodford, whose Invesco Perpetual High Income
and Income funds both count it as their largest single-stock position. They have around 9 per cent invested in the pharmaceutical company apiece.
Over 10 years AstraZeneca has returned 113.56 per cent, which is less than the FTSE 100, which is up 148.86 per cent.
Performance of stock vs index over 10-yrs
||10yr returns (%)
Source: FE Analytics
It has a better record over five years however, with returns of 93.16 per cent compared with the FTSE’s 31.58 per cent.
Graham Toone, head of investment research at AFH Wealth Management, says that AstraZeneca’s healthy balance sheet and strong yield are the major reasons why it is so popular.
"AstraZeneca is sitting on a lot of cash, which supports its high dividend, as this is paid out of the excess capital. For income investors – as it is a cash-cow in many respects – investing in the company’s shares is almost like a quasi-bond."
"They have brought in a new chief executive to try and beef up AstraZeneca’s research and development programme; however I think the majority of funds will not invest in the company for its growth potential, as it is like a bond."
Next week, FE Trustnet
will look at the most held stocks among more growth-focused UK All Companies managers.
Tobacco companies are also very popular with UK equity income managers due to their strong dividend culture.
Newton Higher Income
and Marlborough UK Income and Growth – along with 35 other funds – count Imperial Tobacco as a top-10 holding, despite the fact it is only the 24th-largest company in the UK.
Forty-seven funds hold British American Tobacco, making it the sixth most-held company in the sector.
However, this is less of an off-benchmark position, given that it’s the sixth-largest UK company by market cap.
An FE Trustnet
article recently highlighted the strong performance of the tobacco sector over the last 10 years.
BT and Centrica are other examples of stocks that are popular with fund managers, even though they are fairly low down the market cap ranking.
Centrica – which is a global energy corporate – is held by 25 funds in the sector, meaning it is the 10th most-popular stock.
The company’s dividend yield is 4.8 per cent, and it has also done very well from a growth perspective in recent years; according to FE data, it is up 218.67 per cent over the last decade.
Aberdeen UK Equity Income
and FE Alpha Manager Michael Clark’s Fidelity Moneybuilder Dividend
are among the funds that hold Centrica in their top-10.
Seventy-two – or 73 per cent – of UK Equity Income funds count GlaxoSmithKline as a top-10 holding. These include the likes of Artemis Income
, JOHCM UK Equity Income
and all the equity income funds run by FE Alpha Manager Neil Woodford.
The multi-national pharmaceutical company has a market capitalisation of more than £70bn, making it the fifth-largest corporate in the UK.
Performance of stock over 10 years
Source: FE Analytics
Over the last 10 years, GlaxoSmithKline has returned 99.46 per cent; however, Toone says its popularity in the sector stems from the strength of its dividend yield.
"Like AstraZeneca, GlaxoSmithKline has a very solid balance sheet," he said. "From an income perspective I think it will continue to be a good investment because they are sitting on a lot of cash so the dividend – which is at 5 per cent – is safe."
The largest corporate in the UK is Royal Dutch Shell and it is the second most popular holding in the sector. Along with Artemis Income, FE Alpha Manager Francis Brooke’s Trojan Income
has a high exposure to the stock.
SAB Miller is one of the 10 largest companies in the UK, however Douglas Scott and Iain Wells’ Kames UK Equity Income
portfolio is the only fund in the sector to count it as a top-10 holding.
Toone says that its 1.8 per cent dividend yield is the major contributor to its unpopularity in the IMA UK Equity Income sector. SAB Miller is worth £50bn.