Top-Rated UK Equity Income Funds

Looking for yield from UK equities? These funds come with Morningstar analysts' highest qualitative accolades

Holly Cook 19 July, 2012 | 11:53AM
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There are numerous methods of seeking income, even if the surrounding income environment might not be as favourable as one might hope. If you're looking for a fund to tap into one of these income streams, here's how to go about it on Morningstar.co.uk.

Morningstar's UK website offers data, commentary and research on equities, investment trusts, unit trusts and OEICs, and exchange-traded funds. To give you an idea of how to go about using our tools and Morningstar research, I've screened for the UK equity income funds that carry the highest Morningstar qualitative ratings.

Using the Fund Screener tool, I've selected among my search criteria:

UK ISA Funds—if I'm going to be receiving a healthy income from my investment I want to take advantage of a tax-efficient wrapper
All Fund Companies—I want to view the whole offering; 
Broad Category: Equity—I want income from equities rather than bonds;
Morningstar Category: UK Equity Income —I believe I have enough exposure to small and mid-cap equities in the UK so I want to focus on dividend-paying large caps;
Currency: GBP
—I don't want to take on forex risk.

I've also selected Inc distribution status as I want a fund that's going to pay out income rather than reinvest my dividends. (Alternatively, selecting “Acc”, which means “accumulation”, would ensure my dividends are re-invested back into the fund).

I also ensured that I'm searching only for non-institutional funds, since I’m an individual investor.

Finally, I want to know which funds that meet my criteria are the most highly regarded by Morningstar’s independent fund analysts, so I've also selected to be shown only those funds that have been awarded Gold and Silver Analyst Ratings.

I've left the other search criteria open as I can always return and narrow my search further, limiting the results according to their standard deviation or total expense ratios, for example.

Having refined my screening criteria, clicking 'Search' at the bottom of the page produces a list of several funds. I can then rank these funds according to rating, performance, fees details, and various other metrics by clicking on the relevant columns. I can even read Morningstar analysts' independent reports on each fund if I subscribe to Morningstar Premium (test drive the service for free for 14 days here).

Here is a list of some of the Gold and Silver-rated funds that were found using the Fund Screener tool:

Artemis Income (Morningstar Analyst Rating: Gold)
Morningstar analysts believe this is an excellent choice for investors seeking income from UK equities. Premium members can read the full research here.

AXA Framlington Equity Income and AXA Framlington Monthly Income (Silver)
Morningstar analysts believe these funds, run by the highly experienced investor George Luckraft, are top notch. However, Morningstar analyst Chetan Modi points out that investors interested in the AXA Framlington Equity Income fund will have to be able to stomach volatility, while investors in the AXA Framlington Monthly Income fund will need to be patient because the fund has underperformed its peers over the last few years.  Premium members can read the full research here and here.

BlackRock UK Income (Silver)
Morningstar analysts say this fund is “a strong choice for investors requiring a balanced approach between the growth of income and capital...The fund is managed in a flexible fashion and the managers will position the fund in line with their assessment of the economic cycle.” Premium members can read the full research here.

Invesco Perpetual Income and Invesco Perpetual High Income (Gold)
Morningstar analysts believe these funds are a suitable choice for patient, long-term investors. They think highly of manager Neil Woodford and his well-executed strategy. Premium members can read the full research here and here.

JOHCM UK Equity Income (Silver)
Morningstar analysts believe this JO Hambro fund, co-managed by Clive Beagles and James Lowen, is a compelling fund for investors who are seeking both income and capital growth. The managers use a contrarian strategy, focusing on high-yielding stocks with reasonable growth prospects. Premium members can read the full research here.

Jupiter Income Trust (Gold)
This fund is run by “a seasoned manager with a proven strategy,” says Morningstar analyst Chetan Modi. “(Manager Anthony) Nutt has served investors well using the same strategy since he took charge here almost a decade ago, which is a level of consistency that is rare in fund management,” writes Modi in his latest report. Premium members can read the full research here.

Threadneedle UK Equity Income (Silver)
Morningstar analysts believe this fund would work well as a core holding within an investment portfolio, and is particularly suitable for investors who are seeking exposure to UK equities with an income bias. Premium members can read the full research here.

Search for funds meeting your own investment criteria by clicking here.

(Co-written with Morningstar journalist, Alanna Petroff.)

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Holly Cook

Holly Cook  is Manager, Morningstar EMEA Websites