The £306m portfolio, which is headed up by Gary West and James Inglis-Jones (pictured), is set to move out of the IMA UK Equity Income sector and in to the Global Equity Income sector in early July this year. UK Equity Income funds are allowed to have up to 20 per cent of their assets in companies that are domiciled outside of the UK; however, the managers believe this is still too restrictive and have taken matters in to their own hands as a result.
"There are relatively few stocks in the UK that satisfy both our cash-flow and yield criteria," said Inglis-Jones.
"By investing globally, the fund will benefit from greater diversification of stocks and sectors."
"We will be able to find higher-yielding stocks in almost all industrial sectors and we believe this will enable the fund to enjoy lower levels of volatility and improve the reliability of generating income from the underlying portfolio."
The fund will be completely unconstrained and so will not take a benchmark, but will draw on the performance of the IMA Global Equity Income sector average as a means of comparison.
Although Inglis-Jones is confident he will be able to find higher-yielding stocks in the global market, our data shows that the IMA Global sector is yielding less than the IMA UK Equity Income sector [3.2 per cent compared with 4 per cent].
However, it is worth pointing out that Liontrust Income prides itself on being a high income portfolio, and will aim to produce an above-average yield in its sector. It is currently paying out 4.76 per cent.
On a cumulative basis, there is little to separate the two sectors. IMA UK Equity Income comes out on top over three and 10 years, but IMA Global Equity Income has a better record over one and five.
Performance of sectors over 10yrs
| Name | 1yr (%) | 3yr (%) | 5yr (%) | 10yr (%) |
|---|---|---|---|---|
| IMA UK Equity Income | 20.71 | 39.41 | 31.97 | 139.1 |
| IMA Global Equity Income | 21.6 | 37.5 | 38.91 | 117.88 |
Source: FE Analytics
IMA Global Equity Income has been consistently less volatile, though.
Liontrust Income currently has 16 per cent in non-UK markets, with all of this allocation in continental Europe at present.
Because it has 6 per cent in cash, it has less than the 80 per cent in UK equities that the IMA advises all UK Equity Income funds should have.
The team says there will be no significant overhauling of the portfolio, but that investors can expect the 20 per cent ex-UK limit to be breached at certain times. The fund will retain the same objective, meaning that it will still aim to "provide a high level of income with capital values keeping pace with inflation".
There are a number of funds in the UK Equity Income sector that have a significant portion of their assets in non-UK markets, but that have not yet changed sectors.
FE Alpha Manager Neil Woodford’s Invesco Perpetual Income and High Income funds both have 19 per cent in international equities, split between continental Europe and the US.
The likes of Roche and Reynolds American are top-10 holdings for both funds.
Invesco Perpetual UK Strategic Income, Schroder Income, Psigma Income and Neptune Income also have in excess of 15 per cent of their assets in non-UK stocks.
It is not the first time that a fund has moved in to one of the global sectors to broaden its remit.
First State is currently in talks about the possibility of moving its flagship Global Emerging Markets Leaders fund in to the Global sector, to give Jonathan Asante and his team greater flexibility when it comes to picking stocks.
He and colleague Angus Tulloch recently voiced concerns over the quality of companies making up emerging market indices.
Liontrust Income was one of the most popular UK Equity Income funds in the 1990s and early 2000s, when it was headed up by Simon Laing.
The fund was one of the best performers in the sector from Laing’s appointment in 1996 right up until the financial crisis, doing particularly well between 2002 and 2007.
However, a disastrous 2008, coupled with Laing’s departure in early 2009, signalled a dramatic fall from grace for the fund.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
Inglis Jones and West have steadied the ship, but the fund has continued to experience outflows.
Liontrust Income requires a minimum investment of £1,000 and has an ongoing charges fee (OCF) of 1.65 per cent.