Menu Menu Menu Login Login Log in Search Search Search
Top

The case for equity income investing

Plus - 15 years of HL Multi-Manager Income & Growth

Important - The value of investments can fall as well as rise, so you could get back less than you invest, especially over the short term. The information shown is not personal advice, if you are unsure of the suitability of an investment for your circumstances please contact us for personal advice. Once held in a SIPP money is not usually accessible until age 55 (rising to 57 in 2028).


Heather Ferguson

Investment Analyst

Beauty lies in simplicity - the case for equity income

We’ve been singing the praises of equity income for more than 30 years, and for good reason. In our view, it’s the simplest and most predictable way to grow wealth over the long term.

By investing in a dividend-paying company, you own a share of that business and align your wealth with theirs. You’re entitled to receive a share of any profits paid out as dividends.

The best companies will grow their profits and therefore dividends over time. This income can be spent or reinvested, which means dividends are earned on an ever-increasing number of shares. A rising dividend often translates into a rising share price too, so investors can benefit from capital growth as well as a growing income.

But success isn’t guaranteed. Some companies will inevitably fall on hard times, or cease trading altogether. That’s why we think it’s sensible to invest with proven fund managers who can – hopefully – sort the wheat from the chaff. Remember all stock market investments can fall as well as rise in value, so you could make a loss.

See how HL's equity income fund has fared over 15 years

But there are many ways to skin a cat, and a number of approaches to investing in these businesses.

The traditional method is to seek stable ‘defensive’ businesses with strong recurring revenues and more predictable profits. These include companies selling food, tobacco, pharmaceuticals and utilities.

Meanwhile, value investors focus on companies they feel have been overlooked or avoided by others. Depressed share prices often mean a high yield (as a share falls in price, its yield rises, provided the dividend isn’t cut).

If the company’s potential begins to be recognised and the share price rises, the investment can be sold at a profit and the proceeds ploughed back into the next high-yielding opportunity. At the moment these investors favour the commodities and financial sectors.

Elsewhere, others will shift their investments around according to their outlook for the economy, and favour defensive businesses when the outlook is weakening, and racier sectors when the outlook is improving.

Why income funds can also make great growth funds

For growth investors, reinvesting dividends is a powerful way to grow wealth.

Reinvesting dividends means buying more shares, which in turn means more dividends are received in future. It’s the classic compounding effect Einstein is said to have described as the eighth wonder of the world.

To illustrate this, we looked at a £1,000 investment in UK shares made 30 years ago. Without reinvesting dividends, it would have grown to £3,480. But with dividends reinvested the investment would now be worth £10,443*. As ever please remember past performance is not a guide to future returns, and the next 30 years will be different.

30-year returns on £1,000

Past performance is not a guide to future returns.

Returns of the FTSE All Share Index. Source: *Lipper IM to 30/09/17

See how HL's equity income fund has fared over 15 years

Voted Best Fund Platform 2016
Why a Multi-Manager approach?

Read now

Richard Troue

Head of Investment Analysis

With you through thick and thin

No company will increase its dividend every year, or entirely avoid difficult periods.

That’s why we suggest investors diversify across a number of different investments to spread risk.

Some will prefer to manage a portfolio of shares themselves, but many others prefer the convenience of an equity income fund, with a professional fund manager at the helm.

The equity income sector is home to some of the finest fund managers in the UK. But with so many managers and unique investment styles to choose from, selecting the right ones can be difficult.

We think this is where a multi-manager fund comes into its own.

Why a multi-manager approach?

A multi-manager fund is a simple concept. It’s a fund that invests in other funds.

But it’s much more than that.

Each underlying fund is carefully chosen with the whole in mind, and each plays a different part in the overall result. Investors can be safe in the knowledge that their money is cared for by an experienced team who spend their days thinking, reading, selecting and talking about funds.

The diversification and wealth of experience that comes so neatly packaged within a multi-manager fund should not be dismissed.

The HL Multi-Manager Income & Growth Trust

The HL Multi-Manager Income & Growth Trust is our solution for equity income investors. It’s run by our sister company HL Fund Managers Ltd. Clients have entrusted our Investment team with £9bn of their money, so you can be confident your money is in experienced hands.

Lee Gardhouse and Ellen Powley have managed the fund together since February 2006, and Lee has been at the helm since inception in 2002.

It’s a one-stop shop of our favourite income funds, rolled into one simple investment. Our expert team fuse different, yet complementary fund management styles to form a diversified portfolio. They then monitor these and make any necessary changes on your behalf.

Traditional equity income funds, which are full of large defensive businesses with stable cash flows and strong balance sheets, sit alongside funds focusing on more undervalued or economically sensitive businesses. We also invest with managers whose expertise lies in higher-risk medium-sized and smaller companies. These can be a great source of dividend growth.

Lee and Ellen also hold a number of funds that seek income from overseas markets. Overseas investments can form up to 20% of the portfolio.

HL Multi-Manager Income & Growth Trust

Invest now

15 years of delivering for investors

On 18 October the fund reached its 15th anniversary. The results to date have been exceptional. We feel they justify the extra costs involved with a multi-manager approach.

£10,000 invested at launch was worth £39,569 on the fund's anniversary with income reinvested (Lipper IM, 18/10/02 - 18/10/17). This is during a period that included the global financial crisis, the euro zone debt crisis, the Brexit referendum and numerous other events which have caused concern for investors.

Those who took the income have received almost their entire initial investment back as income, and grown their capital too. £10,000 invested at launch has generated £9,354 in income and the capital is worth £21,956.

As ever please remember that past performance is not a guide to future returns. Like all stock market investments the fund’s value can fall as well as rise, so you could get back less than you put in.

Income and capital growth returns on £10,000 invested at launch

Past performance is not a guide to future returns

Source: Lipper IM, 31/10/02 - 30/09/17

Annual % growth
(income reinvested)
Sept 12-13 Sept 13-14 Sept 14-15 Sept 15-16 Sept 16-17
HL Multi-Manager Income & Growth 23.5 9.1 3.8 12.8 8.1
FTSE All-Share 18.9 6.1 -2.3 16.8 11.9
IA UK Equity Income 20.5 7.1 3.1 11.3 10.6

An impressive income record – and a 4% yield (not a reliable indicator of future income)

The fund currently yields 4.0%, though this isn’t reliable indicator of the income you’ll receive in future.

Growing the income paid to investors is a key area of focus. Inflation over the past few years has been relatively low, but this isn’t always the case and we want to try to ensure your dividends buy as much, if not more, tomorrow as they do today.

Investors in the fund regularly asked us if it would be possible to receive income monthly. So in 2014 the fund began to pay a dividend each month instead of quarterly. This year investors enjoyed 11 equal monthly payments, with a bumper amount in the twelfth month.

In common with most other equity funds, this fund takes its charges from capital. This allows more income to be paid out, but can reduce the potential for capital growth.

More investment ideas – we look at the Artemis Income and Jupiter Income funds

Annual income on £10,000 invested at launch (£)

Past performance is not a guide to future returns.

Source: HL to 18/10/17

Fund information

Investment goal: Income and growth
Net initial charge: 0.00%
Ongoing charge (OCF/TER): 1.32% p.a.
Ongoing saving from HL: 0.00% p.a.
Net ongoing charge: 1.32% p.a.
Vantage service charge: 0.45% p.a.
Maximum overall charge: 1.77% p.a.

View Key Features

View our charges

HL Multi-Manager Income & Growth Trust

Invest now

Kate Marshall

Senior Investment Analyst

Further investment ideas

The HL Multi-Manager fund currently consists of 10 underlying holdings. Below, we look at two of these – the Artemis Income and Jupiter Income funds. We think either would make a great investment in its own right.

In common with most equity income funds, these funds take their charges from capital. This allows more income to be paid out, but can reduce the potential for capital growth.

2016 best investment platform

Voted Best Investment Platform 2016

Investment idea

Artemis Income - a traditional approach

The Artemis Income Fund has been held in the HL Multi-Manager fund since day one.

Adrian Frost, alongside his co-manager Nick Shenton, tends to invest in steady businesses already generating high cash flow and those able to grow it over the long term. They have the flexibility to invest across the entire UK market, although they tend to favour large and medium-sized firms.

The fund provides a stable base to the portfolio, and due to the quality nature of the businesses Adrian Frost favours, we expect it to offer an element of shelter from falling stock markets.

Having invested with Adrian Frost for 15 years, our team deeply understands his process, his philosophy, and his style of investing. Notes from our meetings with him span 56 pages, and we have 180 months of detailed quantitative analysis.

Since launch in 2002 the fund has delivered growth of 263.7% with dividends reinvested. For comparison the FTSE All Share Index has delivered 178.1% and the average equity income fund 173.4%^. As ever please remember past performance isn’t a guide to future returns. The fund’s value will fall as well as rise, so you could get back less than invested.

Frost is an equity income veteran, and his approach has been consistent throughout his career. We think this fund makes an excellent choice for investors seeking a traditional equity income fund focused on cash-generative companies with the ability to reliably increase dividends.

Fund information

Investment goal: Income and growth
Net initial charge: 0.00%
Ongoing charge (OCF/TER): 0.79% p.a.
Ongoing saving from HL: 0.09% p.a. i
Net ongoing charge: 0.70% p.a.
Vantage service charge: 0.45% p.a.
Maximum overall charge: 1.15% p.a.

The HL saving is delivered via a loyalty bonus, which may be subject to tax outside an ISA or SIPP.

View Key Investor Information Document

View our charges

Annual % growth
(income reinvested)
Sept 12-13 Sept 13-14 Sept 14-15 Sept 15-16 Sept 16-17
Artemis Income 20.1 8.7 0.4 11.2 11.8
FTSE All-Share 18.9 6.1 -2.3 16.8 11.9
IA UK Equity Income 20.5 7.1 3.1 11.3 10.6

Past performance is not a guide to future returns.

Source: ^Lipper IM, to 30/09/17

Artemis Income

Invest now


Investment idea

Jupiter Income - a contrarian play

As a value investor and natural contrarian, Ben Whitmore seeks businesses which have fallen on hard times, but where he sees potential for a recovery. We’ve invested with him since August 2014.

He has built a long and successful career of identifying opportunities others have missed. His previous fund at Jupiter focused on capital growth, but his style means he naturally favours dividend-paying companies. He believes dividends play an important part in overall total returns and has successfully applied this approach to the management of the Jupiter Income Fund since 2013.

Over this period his fund has been an outstanding performer, delivering a total return of 65.8% with dividends reinvested. This compares with 55.3% for the FTSE All Share Index and 59.2% for the average equity income fund*. Past performance isn’t a guide to future returns. The fund’s value will fall as well as rise, so you could get back less than invested.

We think Ben Whitmore’s approach offers something different from most UK equity income funds and it could be a great way to diversify a more traditional income portfolio.

Fund information

Investment goal: Income and growth
Net initial charge: 0.00%
Ongoing charge (OCF/TER): 0.94% p.a.
Ongoing saving from HL: 0.34% p.a. i
Net ongoing charge: 0.60% p.a.
Vantage service charge: 0.45% p.a.
Maximum overall charge: 1.05% p.a.

Part of the HL saving is delivered via a loyalty bonus, which may be subject to tax outside an ISA or SIPP.

View Key Investor Information Document

View our charges

Annual % growth
(income reinvested)
Sept 12-13 Sept 13-14 Sept 14-15 Sept 15-16 Sept 16-17
Jupiter Income Trust 15.6 7.9 -1.0 20.8 10.1
FTSE All-Share 18.9 6.1 -2.3 16.8 11.9
IA UK Equity Income 20.5 7.1 3.1 11.3 10.6

Past performance is not a guide to future returns.

Source: *Lipper IM, to 30/09/17

Jupiter Income

Invest now