UK Equity Funds continue to be one of the top sector choices for investors, says Nigel Walker, Head of Research at TQ Invest.
Here, he offers his pick of three Hero funds and highlights one fund he feels belongs on the Zero list.
"UK equity income funds continue to be a mainstay of investors' portfolios,” said Nigel Walker, Head of Research at TQ Invest.
“There are two main reasons for this: firstly there’s immediate familiarity with the companies held within such funds, something investors typically prefer; and, secondly, low interest rates have meant that returns from traditional deposit account are so low that investors have had to look elsewhere.
“As average income returns from the sector are in the region of four per cent per annum, so this makes an appealing alternative to savings accounts."
TQ Invest Equity Income Hero funds
Neptune Income
"This has been managed by the well regarded Robin Geffen since launch in 2002,” says Nigel Walker. “The fund's initial approach is to identify favoured sectors, followed by stock research to then focus on large and medium-sized companies operating within the selected sectors.
“The manager then applies a highly disciplined approach investing equally in just 33 strong companies. All will have a global presence and be companies that dominate in their relevant sectors.
“This concentrated portfolio breaks down into three elements; 11 stocks with a five-year record of growing dividends, 11 stocks that are short-term holdings reflecting the sector views and 11 recovery stocks that have an identifiable catalyst for change.
“Typically no more than 30 per cent will be invested in one industry sector, with up to 20 per cent invested in overseas equities."
Artemis Income
"This fund has been co-managed by Adrian Frost and Adrian Gosden since October 2003. Under their management the fund has shown solid performance, as a result of their research process that, amongst other issues, takes into account the level and direction of a company's cash flow, its sustainability and related issues such as the impact of the management team.
“The managers also have access to an in-house research tool. Stock weightings are determined by conviction but will not represent more than 5 per cent of the fund value. The managers have the flexibility to invest up to 10 per cent in corporate bonds, 20 per cent in European equities and 30 per cent in smaller UK companies, which ensures greater flexibility than many of its peer funds."
Invesco Perpetual High Income
"By doggedly sticking to his contrarian approach, Neil Woodford has outperformed the FTSE All Share Index in 17 of the 20 calendar years under his management [Source: Standard & Poors, October 2009].
“This is now the largest of all unit trusts, approaching £10 billion in size; however Neil Woodford has yet to find that it is difficult to make changes to the portfolio due to its size, although it does mean this is far less nimble than peer funds.
“He continues to favour a defensive approach, with an emphasis on utility and healthcare companies. This focus upon companies which he believes have dependable earnings leads him to have over 50 per cent of his portfolio accounted for by the top 10 holdings, so this is a much more concentrated fund than most others."
TQ Invest Equity Income Zero fund
New Star Higher Income
"Henderson New Star Higher income has had a torrid time in recent years. The high-profile manager did not produce the anticipated performance; consequently there was change of manager. However the fund has experienced considerable outflows, which makes it harder to manage.
“There are more attractive funds to consider in the UK equity income sector, ones which have been much more consistent in producing good results for investors."
To view the full Heroes and Zeroes fund list provided by TQ Invest, visit
www.torquilclark.com/invest/funds/hero-zero
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