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Equity income: home is where the heart is?

by Dylan Lobo on Dec 27, 2012 at 07:00

Market watchers such as PSigma chief investment officer Tom Becket struggle to understand why investors choose traditional UK funds at all.

‘I find it strange UK income funds have remained so in vogue when there are an increasing number of high-quality global income products on offer now,’ Becket says.

‘It might well have something to do with the lack of lengthy track records in the global space or cunning marketing by the fund houses of UK income strategies. Many investors still feel most comfortable investing in the names in lights, such as [Invesco Perpetual’s] Neil Woodford and [Artemis’] Adrian Frost.’

Becket adds: ‘The opportunities for global income investors are obviously far greater than for those constrained to the UK, with excellent dividend yields on offer in Europe and the emerging markets.

‘Furthermore, even the low-yielding markets in the US and Japan have seen the light (and the outperformance of dividend stocks) and started to increase their dividends, in some cases aggressively.’

Yet it is not easy to dismiss the UK as an income market, especially given its rich history and the fact it is home to some of the top managers in this country.

Making a case for the UK

Those who run UK equity income funds make a strong case for the sector, backing their arguments by some meaty statistical evidence.

Tineke Frikkee, manager of the £2.3 billion Newton Higher Income fund, one of the sector’s stalwarts, acknowledges global income looks attractive but points out the MSCI World has been more volatile than the FTSE All-Share over the last eight to 10 years, with currency movements increasing the risk levels.

‘Dividends from UK equity income funds are mainly exposed to the dollar-sterling exchange rate as 45% of UK companies’ dividends are declared in dollars,’ Frikkee says.

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