UK Equity Income: The cautious choice
Invesco Perpetual’s offerings dominate the sector, but one cheaper fund has outperformed these two over three years, with a higher yield and lower volatility.
By Mark Smith, Reporter, FE Trustnet
Friday May 04, 2012
Cautious investors looking at the UK Equity Income space may be better off putting their money into Fidelity Moneybuilder Dividend
instead of one of Neil Woodford’s funds.
The Invesco Perpetual High Income
portfolios currently have more than £20bn AUM between them, and their returns of 323 per cent and 335 per cent respectively over the last 15 years are unmatched by any in the sector. Woodford’s style is well known and often imitated. He invests in stable, well-run companies with predictable earnings and reliable dividends.
However, FE Alpha Manager Michael Clark’s
Fidelity Moneybuilder Dividend is a strong alternative to the Invesco funds and features many advantages over its more famous rivals.
"The fund holds a number of the same stocks and has similar criteria to Woodford," said Chris Spear, managing director at Spear Financial. "Reinvesting dividends is one of the only ways for investors to make much money in a range-bound market like we have now."
"I use Fidelity Moneybuilder Dividend as part of my overall income strategy for clients. What I like about Clark is that, like Woodford, he sticks to his guns even when investors are turning to more economically sensitive stocks. I don’t think we can trust the growth story yet with all the risks out there"
Data from FE Analytics
shows that the Fidelity fund has returned 52.25 per cent over the last three years compared with 49.77 per cent from Invesco Perpetual High Income, although Woodford boasts the better long-term record, returning 123.48 per cent over 10 years, more than double Clark’s returns.
Performance of funds vs sector over 3-yrs
Source: FE Analytics
There are many similarities between Fidelity Moneybuilder Dividend and Woodford’s funds. All three have a high weighting to defensive favourites such as GlaxoSmithKline, British American Tobacco and BG Group, and tend to underperform in rallies but hold out better in bear markets.
However, Clark’s fund wins in a number of key areas. Its headline yield of 4.59 per cent is higher than Invesco Perpetual High Income’s 3.82 per cent and a TER of 1.2 per cent versus 1.69 per cent from Woodford’s fund means it is also cheaper.
With £437m in assets under management, the Fidelity fund is far smaller than the Invesco behemoths and so has the flexibility to invest in smaller stocks, a characteristic that could give it the edge when markets return to growth.
With an annualised score of 9.02 per cent over three years, the Fidelity Moneybuilder Dividend portfolio has the lowest volatility profile of any in the sector.