We don’t support this browser anymore.
This means our website may not look and work as you would expect. Read more about browsers and how to update them here.

In this section

HL Select Funds

Why invest now

HL SELECT UK INCOME SHARES

Why invest now

Managers' thoughts

Important information - The value of this fund can still fall so you could get back less than you invested, especially over the short term. The information shown is not personal advice and the information about individual companies represents our view as managers of the fund. It is not a personal recommendation to invest in a particular company. If you are at all unsure of the suitability of an investment for your circumstances please contact us for personal advice. The HL Select Funds are managed by our sister company HL Fund Managers Ltd.
Charlie Huggins

Charlie Huggins (CFA) - Fund Manager

10 February 2017

In the short term, markets are voting machines, rewarding whatever is in vogue. But in the long run, they are weighing machines, measuring the real and the tangible. Dividends are cash, and dividends can move the scales.

A £1,000 investment in UK shares made 30 years ago would have since grown to £4,636 without reinvesting dividends, but to £13,895 with income reinvested*. This demonstrates perfectly the powerful compounding effect of reinvesting dividends. Remember past performance is not a guide to the future, and the next 30 years will be different.

For income, dividends have rarely looked so attractive. The FTSE All Share currently yields around 3.5%, while cash offers next to nothing in the way of returns and ten-year UK government bonds yield around 1.5%. The income you get from bonds is fixed, so offers no protection against inflation, but dividends from shares have the potential to grow significantly over the long term, although they are not guaranteed.

Company dividends have grown by 58% since the Bank of England cut the base rate to 0.5% in March 2009, although bear in mind that neither the income from shares nor their capital value is guaranteed, so investors could make a loss, whereas cash is secure.

Whether looking for income, or growth, investing now puts money to work straight away. Delaying for a few years means you miss out on any income in the meantime, and gives less time for compounding to work. We also believe there are a number of interesting opportunities in the current markets.

Plenty of opportunities

2016 was a good year for the FTSE, but much of the gain was driven by mining and banks, sectors where dividends have proven too volatile in the past for us to consider. Much of the rest of the market, including many of the high quality companies we prefer, had a much quieter year and still look good value in our eyes.

Sectors such as utilities, real estate and pharmaceuticals had a relatively poor 2016. These sectors have proved to be reliable dividend payers in the past, and all three are currently offering yields north of 4% (not a reliable indicator of future income). Domestically-focused sectors such as travel & leisure have had an especially bad time of it since the Brexit vote, creating some very interesting dividend opportunities in our view.

We will hold a mixture of higher yielding companies, whose dividends will form the bedrock of the overall income, and some exciting, lower yielding stocks that we believe have outstanding earnings and dividend growth prospects. We believe this gives us the right balance, of seeking income today and growth for the future, to help achieve a compelling overall long-term return for our investors.

Please be aware, the closing date for applications at the fixed £1 launch price is 1 March.

Invest now

More about HL Select UK Income Shares

Read more blog articles

*Source Lipper IM to 31/01/2017

Important - This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information. Unless otherwise stated performance figures are from Bloomberg and estimates, including prospective yields, are a consensus of analyst forecasts from Bloomberg. They are not a reliable indicator of future performance. Yields are variable and not guaranteed.