Spotlight on 3 Funds Seeking Income in UK Equities

The UK Equity Income fund sector remains highly competitive but investors must be aware of the different styles and strategies adopted within the available offerings

Simon Molica 8 November, 2012 | 12:46AM

The search for income from equities remains a key focus for investors, which is of little surprise given the extent to which the zero interest rate environment is forcing investors to walk the gangplank of risk in search of return and attractive yields. 

Growth of the UK Equity Income Seekers
A raft of new equity income fund launches reflects this thirst for income. These new funds invest in regions beyond the historically-strong traditional dividend markets, such as that of the UK. This thirst is further manifested by the Investment Management Association (IMA) specifically launching a Global Equity Income category earlier this year.  However, the UK continues to dominate the income landscape, due in part to its heritage. The IMA UK Equity Income sector accounts for 8.5% of the total assets under management within the IMA sectors, while global equity income accounts for less than 1%. 

Further signs of the IMA UK Equity Income sector’s continued evolution are present in the increasing number of funds now investing further down the market cap scale, reaching into small-caps and even AIM-listed stocks. We broadly think of equity income funds as falling into one of three categories: those that specifically target a high income; those that are equally-focused on the need to pay an above-average income and to grow the fund’s income over time; and those that adopt a total return approach. However, all funds are required to produce an income which generates 110% of the FTSE All Share index yield in order to be included within the IMA’s UK Equity Income sector. 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
BNY Mellon UK Income GBP Inc61.09 GBP1.05
Fidelity MoneyBuilder Dividend214.51 GBP0.52
Threadneedle UK Eq Inc Rtl Inc GBP0.91 GBP0.94
Vodafone Group PLC124.16 GBP0.00

About Author

Simon Molica

Simon Molica  is a portfolio manager for Morningstar Investment Management

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