Regular readers will know we are huge advocates of equity income investing. The concept is simple - invest in the shares of well-managed companies whose dividends grow over time. This provides a rising income, which if reinvested can create a snowball effect of compound growth. Furthermore, the shares of such companies often find favour with investors, meaning their prices rise.
Finding the best companies for income investing is not an easy task, so we believe a selection of quality equity income funds could be an excellent ‘core’ to a portfolio. There are a number of renowned managers in the sector, and two that are sometimes overlooked are Adrian Frost and Adrian Gosden of Artemis. Their Artemis Income Fund presently yields 4.3% (variable, not guaranteed). It has outperformed its sector and successfully grown income payments to investors since launch in 2000.
Investors at launch would have received a yield of around 4% initially. However, based on the original capital invested that yield would now be around 7.7%. Their capital would have grown by 83% too*, although over some periods it has lost money and past performance is not a guide to future returns. Fund charges can be taken from capital, reducing the potential for growth.
|02/01/2008 to 02/01/2009||02/01/2009 to 04/01/2010||04/01/2010 to 03/01/2011||03/01/2011 to 02/01/2012||02/01/2012 to 01/01/2013|
|IMA UK Equity Income||-29.3%||23.5%||13.6%||-3.1%||14.6%|
*Source: Lipper 06/06/2000 to 02/01/2013
Adrian Frost and Adrian Gosden have over 50 years’ investment experience between them. Their strategy is to maximise long-term returns by targeting firms that are investing for the future and can keep growing their dividends. They would rather have 5% dividend growth in a company investing to sustain long-term growth, than 10% dividend growth at the cost of poorer long-term prospects.
In addition to high-yielding UK blue chips like GlaxoSmithKline, AstraZeneca and Vodafone, the fund can also invest in high-yielding overseas companies such as pharmaceutical giants Merck and Novartis. This has aided performance as well as providing greater diversity.
It is easy to let fear of stock market volatility prevent you from taking action. Nobody likes to see their investments fall in value. However, investors prepared to ride out the inevitable fluctuations can instead focus on the potentially growing yield on offer from equity income. I believe Artemis Income should continue to reward investors over the long term. It remains on our Wealth 150 list of favourite funds across the major sectors.
|Fund manager's initial charge||5.25%|
|HL saving on initial charge||5.25%|
|Net initial charge||0.00%|
|Fund manager's annual charge||1.5%|
|HL saving on annual charge||0.125%|