Dividend concentration in the UK equity income sector is an issue that often raises its head and can be a particularly tricky issue to get away from given the sector’s yield requirements.
Indeed, as Trustnet recently found, there are just four highly-rated UK equity income funds that you can hold together in a portfolio because of their low correlation.
It’s an issue that has also been highlighted recently by industry veteran Robin Geffen with income stalwart Imperial Brands.
As such, Trustnet found out which funds held a high proportion of their portfolios invested in their top holdings, finding four funds that have more than 50 per cent of their portfolio held in their top-10 stocks.
Below, Trustnet takes a closer look at the strategies.
LF Majedie UK Income
First on our list is the £523.8m LF Majedie UK Income fund, a high-conviction strategy overseen by Mark Wharrier and Mike Totton.
Wharrier, a manager on the fund since joining the asset manager in November 2018, and Totton, who was appointed to the strategy in July, aim to deliver an attractive yield while outperforming the FTSE All Share over the long term.
The fund, which has 33 stocks, has around 52.6 per cent of its portfolio held in the top-10 holdings and a historic yield of 5.8 per cent.
According to the latest factsheet, the LF Majedie UK Income fund has 63.5 per cent of the portfolio invested in FTSE 100 names and 23.6 per cent in the mid-cap FTSE 250 index.
Its largest holding is Royal Dutch Shell, which represents 9 per cent of the portfolio, and is closely followed by peer BP, 8.3 per cent.
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
Over the past three years, LF Majedie UK Income has made a total return of 17.41 per cent compared with a 20.73 per cent gain for the FTSE All Share benchmark and a 14.51 per cent return for the average IA UK Equity Income peer.
Threadneedle UK Equity Alpha Income
Next up is the £371.4m Threadneedle UK Equity Alpha Income fund, where the top-10 represents around 52.2 per cent of the total portfolio of 27 securities.
It has been managed by Richard Colwell since 2010, who also oversees the much larger £4.2bn Threadneedle UK Equity Income fund. The benchmark-unconstrained fund targets a yield higher than the FTSE All Share index over rolling three-year periods.
The largest single position in the fund is the drugmaker AstraZeneca, which makes up 9.4 per cent of the portfolio.
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
Threadneedle UK Equity Alpha Income has a historic yield of 4.3 per cent and has made a total return of 14.8 per cent over the past three years.
AXA Framlington UK Equity Income
The third fund on our list is the £77m AXA Framlington UK Equity Income fund, managed by Simon Young, who joined in 2018.
Formerly known as the AXA Framlington Blue Chip Equity Income fund, it changed name in September to reflect a wider remit allowing it to invest in companies lower down the market cap scale.
The latest factsheet shows that 50.82 per cent of the fund is invested in top 10 stocks with Glaxosmithkline, the largest of the 37 holdings, at 7.38 per cent of the portfolio.
While it has the ability to go hunting further down the market cap scale, 74.32 per cent of the portfolio is invested in FTSE 100 stocks with 3.34 per cent held in companies listed on the Alternative Investment Market. A further 18.05 per cent of the portfolio is invested in mid-cap FTSE 250 names.
“We would stress that at this moment we have no desire to move markedly from the fund’s current asset allocation, with over 90 per cent of assets held in FTSE 350 companies,” wrote Young recently.
AXA Framlington Blue Chip Equity Income has made a return of 15.23 per cent over the past three years and has a yield of 3.89 per cent.
TM RWC UK Equity Income
Managed by Ian Lance and Nick Purves, TM RWC UK Equity Income is the final fund on our list with 50.6 per cent of its portfolio invested in the top-10 holdings.
The £247.6m value-oriented strategy was launched towards the end of last year and has 30 holdings, the largest of which is Royal Dutch Shell, representing 6.6 per cent of the portfolios.
The high conviction strategy invests across the UK market cap spectrum, seeking out opportunities that have arisen from stock market overreactions and overemphasis on short-term company and macroeconomic factors.
Performance of fund vs sector & benchmark since launch
Source: FE Analytics
Targeting a 4 per cent yield, TM RWC UK Equity Income has made a loss of 1.71 per cent since launch last October compared with a 0.59 per cent gain for the peer group and a 3.13 per cent for the FTSE All Share benchmark.