UK Equity Income: The adventurous choice
Most funds in the sector invest in the UK’s largest dividend holders but optimistic investors should look for funds with more cyclical exposure.
By Mark Smith, Reporter, FE Trustnet
Friday May 04, 2012
More adventurous equity income investors who are optimistic about the chances of a recovery should take a closer look at the Standard Life Inv UK Equity Income Unconstrained
The £85.9m portfolio has a much higher weighting to economically sensitive sectors such as miners and financials, areas that should do well when markets return to growth.
"Standard Life uses a quantitative screening system called Matrix to filter stocks in the first instance to give managers a list to focus on. Funds which use the system tend to do very well in bull markets," said Hargreaves Lansdown’s Rob Morgan.
Data from FE Analytics
shows that the fund dramatically outperformed the market in the bull years of 2009 and 2010 with returns of 42.53 per cent and 23.53 per cent respectively. By comparison, the average fund in the sector returned 22.88 per cent and 14.58 per cent.
Over the last three years it has returned 58.55 per cent compared with 47.31 per cent from the sector average.
Performance of fund vs sector over 3-yrs
Source: FE Analytics
, who heads up the fund, is comparatively young for a fund manager but he is already being talked about as a future star of the industry. His style is deliberately different from the competition.
Morgan added: "Rather than hunting for the highest-yielding stocks, Moore targets dividend growth. He’s happy to take a position in a stock that has a dividend well below the sector average if it has the potential for dramatic growth."
"This means that the make-up of the portfolio is very different to many of the others in the sector, which tend to hold the largest FTSE 100 companies. There’s room in the portfolio for mid-sized and smaller companies and we like that because it means there’s little overlap with the likes of Woodford
Cineworld and packaging company DS Smith feature in the fund’s top-10, along with Petrofac and Legal & General. These are not typical holdings within a sector that tends to rely on the largest constituents of the FTSE.
The downside of this approach is that the fund is more volatile. With an annual score of 18.09 per cent over three years, it is among the least predictable portfolios in the sector.
Year-on-year performance of fund vs sector over 5-yrs
||2012 returns (%)
||2011 returns (%)
||2010 returns (%)
||2009 returns (%)
||2008 returns (%)
|Stan Life Inv UK Equity Income Unconstrained
|IMA UK Equity Income
Source: FE Analytics
Its exposure to cyclicals also means that it suffers in times of
economic stress. In 2008 the fund lost 44.79 per cent, putting it in the
bottom decile for performance. The third quarter of 2011 was also
particularly hard on it.
Morgan added: "The fund is vulnerable to market falls but if you are
optimistic about improvement in the economy then it won’t lag behind UK
All Companies like the majority of equity income funds and will provide
you with decent capital growth as well as income."
The fund’s one-year historic yield is 4.07 per cent. It is by no means the highest in the sector but considering the approach, it is highly competitive.