Each week we highlight one of the funds from our Wealth 150 as our Fund in focus. The Wealth 150 represents what we believe to be the best funds across the major sectors. This week Kate Marshall, Fund Analyst, looks at the Artemis Income Fund.
Regular readers of our publications will know we are huge advocates of equity income investing. The concept is simple - invest in the shares of well-managed companies whose dividends can 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.
In the UK Equity Income sector, some of the strongest performing funds over the past couple of years have been biased towards small and medium-sized companies, which have performed exceptionally well. On the other hand, while larger UK companies have performed well, they have lagged behind their smaller counterparts. This has left larger companies looking better value relative to smaller businesses.
One of our favoured income funds with a bias towards larger companies is the Artemis Income Fund. We have highlighted this fund to our clients over many years and, in our view, it has proven to be an excellent core holding for income-seeking investors. Adrian Frost and Adrian Gosden have co-managed the fund since October 2003 and since then it has grown by 180.4% with dividends reinvested, compared with 139.6% for the average fund in the peer group. Please remember past performance is not a guide to future returns. The fund also currently offers an attractive yield of 3.7%, though this is variable and not guaranteed.
|% Growth 01/05/2009 to 04/05/2010||% Growth 04/05/2010 to 03/05/2011||% Growth 03/05/2011 to 01/05/2012||% Growth 01/05/2012 to 01/05/2013||% Growth 01/05/2013 to 01/05/2014|
|Artemis Income Fund||30.0||13.5||1.8||22.8||11.6|
|IMA UK Equity Income||30.1||13.8||-1.5||20.1||13.4|
Past performance is not a guide to future returns. Source: Lipper IM* to 01/05/2014
We recently met Adrian Frost for an update on the fund. While he has an excellent track record, he feels a few portfolio holdings have recently disappointed. Tate & Lyle has seen reduced demand for some of its more profitable products due to increased competition from China; William Hill has suffered from growing concerns over the government's crackdown on betting despite strong cash flows; while Legal & General has been hit by recent changes in pension legislation.
However, the fund's exposure to the Healthcare sector has recently received a welcome boost. Top holdings currently include GlaxoSmithKline and Novartis, which have both performed well recently after striking a deal to join forces and reshape their businesses. AstraZeneca is another portfolio holding whose share price recently soared after Pfizer announced its interest in a takeover bid. In addition to Novartis, Adrian Frost has further utilised the fund's ability to invest up to 20% overseas by investing in other healthcare firms including Roche Holdings and Sanofi.
While Adrian Frost has not owned miners in the fund for many years, in light of recent management changes and attractive valuations, he has reintroduced exposure. Over the long term he sees good prospects for companies such as Rio Tinto and Glencore Xstrata, who he believes have the quality of resource and infrastructure to support attractive dividends over the long term.
Adrian Frost is a highly experienced manager, having run equity income portfolios for over 25 years. He is backed by plenty of resource at Artemis, including co-managers Adrian Gosden and Nick Shenton.
Over time, the managers have added significant value ahead of the benchmark, which our analysis suggests is a result of good stock selection and by positioning the fund towards some of the best performing sectors. We continue to believe this fund can form the core of almost any long-term income portfolio. It maintains its long-standing position on the Wealth 150 list of our favourite funds across the major sectors.
Please note the fund's charges can be taken from capital, which can increase the yield but reduce the potential for capital growth.
|Fund manager's initial charge||1.00%|
|HL saving on initial charge||1.00%|
|Net initial charge||0.00%|
|Fund manager's annual charge||0.75%|
|HL annual saving||0.09%|