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The UK Equity Income funds stuffed with the FTSE’s highest yielding stocks

04 February 2016

FE Trustnet reveals the IA UK Equity Income funds that have the largest positions in the FTSE 100 stocks yielding more than 8 per cent.

By Daniel Lanyon,

Senior Reporter, FE Trustnet

The likes of JOHCM UK Equity Income, R&M UK Equity Income and Lazard Multi-cap UK Income are some of the UK equity income funds with the largest exposure to the FTSE’s highest-yielding stocks, according to research by FE Trustnet.

Most experts agree that the outlook for dividends in the FTSE 100 index, the traditional home for UK equity income investors, has darkened markedly in 2016.

Due a decline in sentiment towards certain stocks, overall plunge in the index, slowing earnings growth and increasing pay-out ratios, there has been a spike in dividend yields across the board but particularly in certain areas of the market such as the commodity-related companies.

This means that there are now eight FTSE 100 stocks with a dividend yield of more than 8 per cent. These are all shown in the graph below.

Unsurprisingly, many of these stocks have told the market they are expecting to cut dividends or have already cut dividends in the last 12 months.



Source: Digital Look


Anglo American saw a huge plunge in its share price over the past year thanks to the commodity rout and continuing fall in sentiment towards the reliability of Chinese economic data and its effect on global economic growth.  

The stock could also be hit by another blow due to the rebalancing of the blue chip index in March which may see it booted into FTSE 250 if its falls in market capitalisation continue apace.

No fund in IA UK Equity Income sector currently holds Anglo American as a top 10 position. However, there are plenty of funds that do hold significant exposure to some of the others


There are six funds that have at least four of the highest yielding stocks in their top 10 largest positions, our data shows. These are Insight Equity Income, Insight Equity Income Booster, JOHCM UK Equity Income, Lazard Multi-cap UK Income, R&M UK Equity Income and UBS UK Equity Income.

Source: FE Analytics

A further 19 funds in the 83-strong sector have three of these stocks and more than half have two stocks. None these funds were in the sector’s top quartile for performance in 2015 with 12 out of 24 in the bottom quartile.

All of those that have four of these stocks are bottom quartile so far in 2016 and all but one – Lazard Multicap UK Income – bottom quartile last year. It was third quartile.

At £2.6bn in size, James Lowen and Clive Beagles’ JOHCM UK Equity Income fund is the largest portfolio to hold at least four of the troubled stocks. These total 19.3 per cent of the fund.

The managers have a contrarian style which can often lead them to higher yielding stocks as well as small and mid-caps.

Last year the fund was underweight defensives and overweight oil and mining which meant the portfolio was bottom quartile for the second year in a row and underperformed the FTSE All Share.

Performance of fund, sector and index in 2015

Source: FE Analytics


However, the fund has been one of the sector’s best performers over the longer term, beating its FTSE All Share benchmark by 50 percentage points over the past seven years and the sector average by more than 30 percentage points.


Beagles and Lowen have been adding to their positon in mining in the January sell off in markets.

“Our aggregate overweight in the mining and oil sectors remained around 300bp in each. Valuations in this part of the market have fallen to multi-decade lows on numerous measures,” the managers said in their most recent note to investors.”

“Along with the valuation angle, our attraction here is based on the market overlooking management actions on capital and operating expenditure. These moves will bring corporate cash flows back into balance at the current lower commodity price levels by 2017.”

“The fund’s high dividend, a nadir for value versus growth stocks, expectations of rising bond yields this year, multi-decade low valuations coupled with management action in the oversold resources sectors, and the presence of cheap, well-positioned stocks throughout the portfolio, especially in small caps, underpins our view.”

The Elite Charteris Premium Income fund is the only portfolio in the sector to hold two of the miners as top 10 positons. It has a 4.2 per cent positon in BHP Billiton and a 4 per cent positon in Rio Tinto but none of the other stocks shown in the table on the first page.

Nick Kirrage, co-head of the Schroder global value team and co-manager of the £1.36bn Schroder Income fund, says the outlook for UK dividends is confusing due to some of the high yields on offer.

“The UK dividend yield looks like the market is yielding around 4 per cent still, but that is a counterweight between 20 enormous businesses, several of which with dividends the market is telling you are unsustainable, and then a huge number of companies with dividends that are much, much lower because they’re actually quite expensive, “ he said.

“So we’re now near all-time lows in terms of the number of companies that are yielding more than the market.  That is a very telling stat. We talk about stock pickers, but now it is a time for dividend-pickers,” he added.

Kirrage has just two of the stocks shown in the table on the first page of the article in Schroder Income. These are BP and HSBC which total 9.1 per cent of his portfolio. 

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.