Brittain heads up small and mid cap focused UK trusts at JPM and includes a hefty chunk of the former’s assets in the FTSE 250.
While she acknowledges that mid cap stocks are expensive compared with both the small and large cap market, she says they need to be viewed differently to how they have been in the past, because they often have both attractive and sustainable yields.
"The mid cap market has had a fantastic run, but we’re still able to find proper growth companies that are undervalued, and interestingly a lot of them also have a big emphasis on dividends," she said.
"We all know that income is a factor a lot of private investors are focused on, so this is a really interesting development."
"Mid caps are more expensive as a group than small caps, but we’re able to find companies in the FTSE 250 that tick all the boxes – ones that yield 3, 4, 5 per cent and more, in a sustainable manner."
With this in mind, FE Trustnet asked Brittain to highlight some mid cap companies which may be of interest to investors looking to diversify their income stream away from large cap stocks that dominate the equity income sector.
TalkTalk
Brittain points to telecoms company TalkTalk, which sits in the FTSE 250, as an ideal way to play the mid cap income story.
"When we bought it it was on a very high yield indeed," she said. "We felt it had interesting fundamentals and after some work we decided to buy it."
Performance of stock and index over 3yrs
Source: FE Analytics
"The share price has gone up a lot and so the yield isn’t as excessive as it was at 8 per cent, but you can still get a yield of 4 or 5 per cent now which is still very appealing. It did have a wobble earlier in the year after the unexpected news that BT would be entering the football market, but performance overall has been very good."
"Looking to the future, we are expecting benefits in cash-flow in 2015 to be very dramatic and so expectations are very positive."
"The figures coming out of TalkTalk are very strong and if anything have been surprising on the upside," she added.
TalkTalk is a top-10 holding in Brittain’s £158m JP Morgan Mid Cap IT. In the IMA unit trust and OEIC universe, five funds hold it in their top-10, including FE Alpha Manager Giles Hargreave’s Marlborough Multi Cap Income fund.
Micro Focus International
Brittain highlights another top-10 holding – multinational software and information technology company Micro Focus – as a good mid cap income play.
"This is a steadier company, but with very good numbers – any growth is seen as a surprise," she said.
"However, it generates an extraordinary amount of cash – so much cash it doesn’t know what to do with it."
"With a little bit of growth thrown in, it’s a stock that could see a big re-rating."
Micro Focus paid a special dividend this year which bought its yield up to 10 per cent. Without the special dividend, its yield is closer to 4 per cent.
SVM UK Opportunities is one of 11 funds that hold the stock in their top-10.
Berendsen
The final company Brittain highlights is Berendsen – a leading British-based provider of textile maintenance services.
"This has been a very successful growth play, pretty much forcing it out of Europe, but it’s still yielding about 4 per cent," she said.
Performance of stock and index over 3yrs
Source: FE Analytics
"Like all of the income stocks, it is not just a high yielder – its dividend is at a sustainable level and it is a quality company with good fundamentals."
Six funds currently hold Berendsen in their top-10, including John McClure’s five crown-rated Unicorn UK Income fund.
Inmarsat
Helal Miah (pictured), investment research analyst at The Share Centre, highlights Inmarsat as a good income play for investors
"Inmarsat has been experiencing strong subscriber uptake and gaining traction from pricing initiatives," he said. "Momentum in the take-up of new services and a very strong year for its Maritime operations is pleasing for investors."
"The yield of 3.9 per cent is attractive for income-seeking investors and the interim dividend was raised 5 per cent on the same period last year. We recommend Inmarsat as a 'buy' despite defence spending cuts."
Ardevora UK Income is one of eight open-ended funds that hold the company in their top-10.
Smiths News
Although Smiths News sits in the FTSE Small Cap index, Miah highlights it as a good play for investors looking to diversify their income stream.
The stock has had a stellar run, returning more than 100 per cent in the last three years. Growth at this rate could see it be promoted up to the FTSE 250 before long.
"The majority of key contracts have been extended within the core business, which provides a good level of visibility for the medium- to longer-term," he said.
"Newspaper and magazine sales continue to decline as technology evolves, but management is changing the business by expanding into digital media, making acquisitions in the education and care home market and cost-cutting. Non-newspaper and magazine revenues are expected to be 50 per cent by 2016."
"Smiths News’ prospective yield of around 4.8 per cent and a price-to-earnings ratio of 8.9 offers potential value to investors who are prepared to back the management along its path to change. The July update was reassuring and the contract extension with Associated Newspapers and COMAG improves visibility further."
Hargreave’s Multi Cap Income fund is one of four funds that hold it in their top-10.
This article was written in collaboration with and is sponsored by JPMorgan Asset Management.
