Hardman & Co Insight: Equity Income – UK or Global? Should investors widen their horizons?
Introduction► The UK Equity Income sector (UKEI) is the fourth-largest investment company (IC) sector in the Association of Investment Companies’ (AIC) universe, with £12.5bn of assets (as at August 2023), and is the traditional home for investors looking for income in the equity market.
► The UKEI not only provides investors with a better dividend yield than the general UK market, but also has a strong track record of dividend growth. Indeed, many funds feature on the AIC’s “dividend heroes” list for the number of years of consistent growth.
► The UKEI is also marked by the longevity in the role of many of the fund managers. In addition, it has some of the longest-established funds.
► This note asks whether there is justification for investors seeking income to consider three other sectors: Global, Global Equity Income (GEI) and Asia-Pacific Equity Income (Asia-Pac EI). Some investors may want to consider investing part of their portfolios in non-UK funds to diversify their risk; others may think of them as replacements for the UK.
► Although, strictly speaking, not defined as an “equity income” sector, we decided to include the global sector for comparative reasons, because it figures quite highly in the AIC dividend heroes.
► The global income funds benefit from the ability to fish in a wider pool of possible holdings than the UKEIs. They also give the investor currency exposure.
► Another reason to consider the lobal funds is their superior share price performance over 10 years. Finally, although the starting yield is lower than that of the UKEI sector, these global funds have, historically, seen faster dividend growth.
► The two questions we seek to answer are why would you still want an income fund, and, if you do want to invest in one, should you consider a global fund, as well as a UK one?
► Overall, we believe that the UKEI remains attractive for investors, but we nevertheless believe an increased awareness of other global opportunities is warranted.
Standard Life Equity Income Trust is an investment company and carries on business as an investment trust. Co. provides a managed portfolio of U.K. quoted companies. The management of Co.'s investments and the day to day operation of Co. is delegated to Standard Life Investments (Corporate Funds) Limited.
Blackrock Income & Growth Investment Trust is an investment trust company. Co.'s principal activity is portfolio investment. Co. invests principally in U.K. listed equities concentrating on FTSE 100 and FTSE 250 companies. BlackRock Fund Managers Limited (the Manager) is Co.'s alternative investment fund manager. The management of the investment portfolio and the administration of Co. have been contractually delegated to the Manager. BlackRock Investment Management (UK) Limited acts as Co.'s investment manager under a delegation agreement with the Manager.
F&C Capital & Income Investment Trust is an investment trust and closed-ended investment company. Co. secures long-term capital and income growth from a portfolio consisting mainly of FTSE All-Share companies. Co. is managed by F&C Investment Business Limited (the Manager), a wholly-owned subsidiary of F&C Asset Management PLC which is owned by Bank of Montreal. F&C Investment Business Limited is appointed under a management agreement with Co. setting out its responsibilities for investment management, administration and marketing. The Manager also acts as the alternative investment fund manager.
F&C UK High Income Trust is an investment trust company. Co.'s portfolio include: Equities Portfolio, which comprises investments in the U.K. equities and equity-related securities of large and mid-sized companies; and Higher Yield Portfolio, which comprises investments in fixed interest and other higher yielding stocks and securities. Co. has delegated the management of the investment portfolio, and other services, to F&C Investment Business Limited as its Manager. As of Mar 31 2017, Co.'s total investments held at fair value was £136.3 million.
Chelverton UK Dividend Trust is an investment trust company.
The City of London Investment Trust is an investment trust company. Co.'s objective is to provide long-term growth in income and capital, principally by investment in equities listed on the London Stock Exchange.
Dunedin Income Growth Investment Trust is an investment trust. Co. maintains a diversified portfolio consisting, substantially, of equity or equity related securities, and Co. can invest in other financial instruments. Co. is invested mainly in companies listed or quoted in the U.K. and can invest up to 20% of its gross assets overseas. Co. invests in various sectors, which include Financials, Consumer Goods, Health Care, Oil & Gas, Industrials, Utilities, Consumer Services, Fixed Income, Telecoms, Basic Materials, and Technology. Co.'s portfolio is managed by Aberdeen Asset Managers Limited. As of Dec 31 2016, Co.'s total investments portfolio was valued at £470,664,000.
Edinburgh Investment Trust is an investment trust company. Co. generally invests in companies quoted on a recognized stock exchange in the U.K. Co. also invest in securities listed on stock exchanges outside the U.K. Co. has contracted with an external investment manager, Invesco Fund Managers Limited, to manage its investments and to provide Co.'s general administration. As of Mar 31 2017, Co. had total investment portfolio valued at £1.73 billion.
Invesco Perpetual Select trust is a public listed investment company. Co. generates risk-adjusted returns from four segregated portfolios, with the ability to switch between them, four times a year, free from capital gains tax liability. The portfolios are UK Equity, Global Equity Income, Balanced Risk and Managed Liquidity. Co. has an indefinite life and is intended as a long-term investment vehicle.
JPMorgan Claverhouse Investment Trust is an investment trust company. Co. invests in a portfolio consisting of companies listed on the London Stock Exchange. Co.'s portfolio consists of between 60 and 80 investments. Co. invests no more than 15% of gross assets in other U.K. listed investment companies (including investment trusts), and invests no more than 15% of gross assets in any individual investment (including unit trusts and open ended investment companies). Co.'s investment portfolio comprised of a range of sectors including financials, consumer goods, industrials, basic materials, and oil and gas. Co. employs JPMorgan Funds Limited as its Alternative Investment Fund Manager.
Law Debenture Corporation is an investment trust and a provider of independent professional servicesdivides into two areas of business: investment trust and independent professional services. Col. is an investment trust, listed on the London Stock Exchange. Co.'s portfolio of investments is managed by Janus Henderson Investors under a contract. Co. invests in a portfolio diversified both geographically and by industry. Co. is a provider of independent professional services. Co.'s activities are corporate trusts, pension trusts, corporate services (including agent for service of process), whistle blowing services and governance services.
Schroder Income Growth Fund is an investment trust company. The investment policy of Co. is to invest primarily in above-average yielding U.K. equities but up to 20% of the portfolio may be invested in equities listed on recognized stock exchanges outside the U.K. Co. has appointed Schroder Unit Trusts Limited as the Manager.
Shires Income is an investment company, engaged in investing mainly in U.K. equities. Co. invests principally in the ordinary shares of U.K. quoted companies, and in convertible and preference shares with above average yields. Co.'s investment portfolio comprised of a range of sectors including oil and gas, basic materials, industrials, consumer goods, healthcare, consumer services, telecommunications, utilities, financials and technology. Co. is managed by Aberdeen Fund Managers Limited. As of Mar 31 2017, Co.'s total investments was £97.8 million.
Temple Bar Investment Trust is engaged as an investment company. Co.'s principal business activity of investment management is sub-contracted to Investec Fund Managers Limited, the Alternative Investment Fund Manager of Co.
Troy Income & Growth Trust carries on business as an investment trust. Investment trusts are collective investment vehicles, constituted as closed-ended public limited companies. The management of the investment portfolio has been contractually delegated to the Manager, Troy Asset Management Ltd. Troy Asset Management Ltd is an independent fund management company generates absolute returns for investors over the long term. Their investors include private individuals, charities, pension funds, trusts and endowments.
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