By continuing to use this site, you agree to use of cookies. You can change this and find out more by following this link Accept cookies

Top Stock Picks for UK Income Seekers

If you're looking to boost your portfolio's income, try taking a leaf from the books of the top UK equity income fund managers

Holly Cook 22 February, 2013 | 6:00PM

This article is part of Morningstar.co.uk's Equity Investing Week.

Morningstar is a big exponent of the benefit of putting your eggs in many baskets by investing in funds, but we also recognise that many investors prefer to avoid management fees and seek to add alpha themselves. Just because you do your own stock picking doesn't mean you can't also tap into the knowledge and experience of the fund industry's leading players. And we've done exactly that.

Of the 700+ open-end funds available for sale in the UK and rated by Morningstar Analysts, there are just three UK equity income funds* available to non-institutional investors that have earned Morningstar Analysts' top accolade of a Gold rating.

Morningstar data as at end-January 2013 shows that Artemis IncomeInvesco Perpetual Income and Invesco Perpetual High Income have a small handful of common top holdings. (Until recently there was a fourth UK equity income fund rated Gold, but Anthony Nutt’s imminent retirement has forced our research team to place Jupiter Income Trust under review.)

There are just three stocks that appear in the top ten holdings of all three funds: AstraZeneca (AZN), BT Group (BT.A) and GlaxoSmithKline (GSK). Astra and Glaxo are both rated 3 Stars as at February 22, 2013, implying that the shares are fairly valued relative to Morningstar analysts’ own fair value estimates. BT, however, is currently carrying a 2-Star rating, which means the market is apparently overvaluing the shares in the telecoms group compared to analyst Allan Nichols' fair value estimate.

Neil Woodford, veteran manager of the two Invesco Perpetual funds, runs similar portfolios at the two funds but there are some key differences between his portfolios at that of Artemis Income managers Adrian Frost and Adrian Gosden. While Frost & Gosden ascribe 12% of total assets to energy stocks, with BP (BP.) and Shell topping the list, Woodford has something of a tobacco addiction that is beaten only by his love of healthcare. The best of both worlds, one might say. British American Tobacco (BATS) and Imperial Tobacco (IMT) both appear in Woodford’s top ten lists, as well as US tobacco firm Reynolds American (RAI). In addition to Astra and Glaxo, the Invesco manager also holds substantial stakes in Swiss pharmaceuticals firm Roche (ROG).

The only financials to appear among any of the managers’ top ten holdings were HSBC (HSBA) and Legal & General (LGEN), which account for 4.2% and 2.5% of the Artemis Income assets, respectively.

Interestingly, BG Group (BG.), which was a top holding for all three funds as well as Jupiter Income Trust last time we ran this screen in July 2012, is now nowhere to be seen. Shares in the gas explorer have plunged more than 11% in that time, after management revised guidance amid difficulties at its Brazilian operations. Morningstar analyst Allen Good recently upped his fair value estimate on the stock, however, and the 4-Star Rating implies the market isn’t fully appreciating the intrinsic value of this company.

Below are the 17 stocks listed among the top ten holdings of our three top-rated UK equity income funds.

 

*As classified by the IMA's UK Equity Income sector and Morningstar's UK Equity Income category.

Click here to learn more about the Morningstar Star Rating for stocks. To read the Morningstar Research for the above-mentioned stocks, please sign into your Premium account or take a free 14-day trial.

Think you're an investing genius? Click here to prove it with Morningstar's Investing Mastermind Quiz.

Securities Mentioned in Article
Security NamePriceChange (%)Morningstar
Rating
AstraZeneca PLC4,175.00 GBX3.28
BAE Systems PLC396.40 GBX0.25
BP PLC489.35 GBX0.72
British American Tobacco PLC3,424.50 GBX0.22
BT Group PLC372.10 GBX0.03
Centrica PLC331.80 GBX0.36
GlaxoSmithKline PLC1,651.00 GBX0.52
HSBC Holdings PLC613.00 GBX0.13
Imperial Tobacco Group PLC2,550.00 GBX0.24
Legal & General Group PLC205.10 GBX-0.97-
Reckitt Benckiser Group PLC4,951.00 GBX-0.10
Reed Elsevier PLC880.50 GBX0.74
Reynolds American Inc53.93 USD0.99
Roche Holding AG255.20 CHF-0.39
Rolls-Royce Holdings PLC1,031.00 GBX0.10
Royal Dutch Shell PLC Class B2,408.50 GBX0.35
Vodafone Group PLC216.40 GBX0.72
About Author Holly Cook

Holly Cook  is Managing Editor of Morningstar.co.uk