UK equities have risen in each of the past seven months. This follows progress made in Europe since last summer, and the release of improved economic data from the US and China. There are still a number of obstacles to overcome, but an improvement in sentiment towards global markets has aided the performance of UK stocks.
Alan Clifford, manager of the Lazard UK Income Fund, recognises challenging economic conditions could persist for some time despite recent encouraging news. While markets remain volatile, he continues to seek to diversify the fund's sources of income. To achieve this, he aims to identify interesting opportunities across the entire UK sector, investing in both larger and smaller companies.
It is common for equity income funds to mainly invest in large, well-established businesses, paying a steady dividend stream. At present, around 65% of the portfolio is invested in larger, FTSE 100-listed companies. The remainder of the fund is invested elsewhere, including in stocks listed on the Alternative Investment Market (AIM). These companies are smaller, offering the potential for higher returns than their larger counterparts, albeit with more risk.
Alan Clifford tends to look for companies going through a period of change which could ultimately enhance dividends, and overall returns, if the change proves successful. He is a patient investor, recognising it can take time for such changes to be translated into growth and higher profits. He therefore purchases stocks with a long term view in mind.
Current holding, Compass Group, is actively developing its business by looking to expand overseas. The company offers an attractive yield, using a proportion of the profits it generates to pay out to its shareholders. It does, however, reinvest the remainder elsewhere to increase its presence in other parts of the world such as the US and faster-growing emerging markets.
The fund also has select positions in overseas stocks and corporate bonds. Alan Clifford will only purchase compelling opportunities in these areas which he believes will enhance the fund's yield. At present, overseas positions include the multi-national oil and gas company, Eni, and pharmaceuticals business, Sanofi. Positions in the financials sector have recently aided performance, including a Lloyds corporate bond holding.
The fund has delivered good returns since Alan Clifford took over management in September 2008, there are however no guarantees this will continue. The fund has not been as impressive as some of our favoured funds in the UK equity income sector. We would like to see the manager build a longer record before considering the fund for inclusion in the Wealth 150 list of our favourite funds across the major sectors.