Time to be brave and back British companies?
The UK stock market has been out of favour for some time. As Brexit uncertainty has weighed on the minds of both overseas and domestic investors, our companies and our UK equity funds have been shunned in favour of global options.
However, with uncertainty comes opportunity.
While the value of the UK stock market is still relatively high versus its own history, there is still significant scope for company share price increases if investor sentiment improves. And even if it doesn't, the dividend yield of the FTSE All Share is an attractive 4.13%*, providing an income cushion against market falls or the potential for increased total returns.
This income element is an important one: it can be the difference between losses and gains and also the source of enhanced returns.
Consider this: if you had invested £100 in the FTSE All Share 10 years ago, it would be worth £184** today. Not bad. But if you had reinvested the dividends paid by the FTSE All Share companies, it would be worth £264***.
Over the short term dividends can also make a difference. If you had invested that £100 in the FTSE All Share one year ago, your pot of money would be worth less at £97.50^ today. However, if you had invested the dividends, it would be worth £101.50^^.
UK Equity Income funds look specifically for companies that pay dividends.
Here are the details of the UK Equity Income funds on our Core Selection - could any of them find a place in your portfolio?
Man GLG UK Income
Managed by Henry Dixon, this fund has a value-driven approach. It invests predominantly in UK companies of all sizes, but can also invest in continental European businesses that derive a substantial part of their revenues from the UK. The fund also has the ability to selectively invest up to 20% in corporate bonds.
Rathbone Income
Run by Carl Stick since the turn of the millennium, Rathbone Income is a multi-cap UK equity income fund, with an excellent track record of increasing its dividend (it has done so in 25 out of the past 26 years). Carl is unconstrained in terms of sector weightings and is able to fully express his market views with the portfolio positioning.
Standard Life Investments UK Equity Income Unconstrained
This fund, run by Thomas Moore, invests in companies of all sizes, but rather than relying on the UK's mega-caps for income payments, it has a bias towards medium-sized companies, with the potential to grow their dividends. As such, the fund can differ dramatically from others in the equity income sector.
TB Evenlode Income
This is a highly concentrated fund of quality companies. Managers Hugh Yarrow and Ben Peters believe the market fundamentally underestimates the value of high quality businesses because of its obsession with short-term factors. As a result they take a much longer view than is typical of most funds today and invest in high quality, capital-light businesses.
Threadneedle UK Equity Alpha Income
This is a contrarian value fund run by Richard Colwell. He looks for unloved stocks that have the ability to sustainably grow their dividends. His philosophy is to 'think active, act lazy' – which means he will not trade positions for the sake of it, but will be working on new ideas all the time.
*Source: FTSE Russell as at 28 June 2019
**Source: FE Analytics, price returns of the FTSE All Share, over 10 years to 1 July 2019
***Source: FE Analytics, total returns of the FTSE All Share, over 10 years to 1 July 2019
^Source: FE Analytics, price returns of the FTSE All Share, over 1 year to 1 July 2019
^^Source: FE Analytics, total returns of the FTSE All Share, over 1 year to 1 July 2019
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Juliet's views are her own and do not constitute financial advice.