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Schroder UK Alpha Income Fund research update

Kate Marshall | Thu 27 November 2014

Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.

The performance of different stocks or sectors can vary depending at which point we are in the business cycle. It is this philosophy on which Matt Hudson, manager of the Schroder UK Alpha Income Fund, bases his investment approach.

The portfolio is skewed depending on whether we are in the recovery, expansion, slowdown or recession stage of the cycle. In Matt Hudson's view, markets are currently experiencing a mid-cycle rotation. Although he believes we have not quite reached an 'end of cycle' event, he feels the UK economy is in the later stages of expansion.

Economy chart

Matt Hudson has tilted the portfolio away from some of the more economically-sensitive, earlier-cycle businesses. He has recently sold positions in companies such as Daily Mail & General Trust, Debenhams and International Consolidated Airlines.

Exposure to the industrials sector has also been reduced, particularly companies with exposure to emerging markets. As the rate of industrialisation in China has slowed, Matt Hudson feels reduced demand for the products of these firms means they no longer receive the benefit of pricing power. Holdings in Morgan Advanced Materials and Premier Farnell have been reduced.

Proceeds have been invested into areas Matt Hudson expects to benefit during the later stages of the cycle, such as the financials sector including companies such as ICAP and Man Group. Exposure to some larger companies with more defensive characteristics has also been increased - new holdings include Imperial Tobacco and GlaxoSmithKline.

The manager will also look beyond traditional, larger dividend-paying companies in order to take advantage of opportunities across the UK market. This means he will also invest in medium-sized companies, which feature in the FTSE 250 index. According to Matt Hudson, the FTSE 250 remains a good hunting ground for companies offering dividend growth. However, given the strength of this area of the market in recent years, yields are generally less attractive than they once were.

On the other hand, the FTSE 100 features an array of larger companies offering high yields, but lower levels of dividend growth. Overall, the manager balances the fund between larger and higher risk medium-sized companies with the aim of maintaining an attractive, and growing, dividend. Presently, the fund yields 4.1% (variable and not guaranteed).

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Our view on this fund

Matt Hudson has managed this fund since its launch in May 2005 over which time the fund has delivered 123.0% compared with 86.8% and 97.7%* for the sector average and the benchmark, respectively. The fund performed particularly well between 2010 and 2013, though returns were more modest prior to this, as well as over the course of this year so far. Please remember past performance is not a guide to future returns.

Annual percentage growth
Nov 09 -
Nov 10
Nov 10 -
Nov 11
Nov 11 -
Nov 12
Nov 12 -
Nov 13
Nov 13 -
Nov 14
Schroder UK Alpha Income 16.0% 2.7% 19.9% 32.4% -1.3%
IMA UK Equity Income 15.2% -1.3% 13.0% 25.2% 1.8%
FTSE All Share 16.6% -2.0% 13.9% 21.2% 0.2%

Past performance is not a guide to future returns. Source: Lipper IM* to 03/11/2014

In our view, Matt Hudson is a sensible fund manager who has built a respectable track record. However, he is competing against a number of other highly successful and established managers in the UK equity income sector. Furthermore, he recently took over management of the Schroder UK Opportunities Fund, a growth-orientated fund, meaning his responsibilities have increased. We would, therefore, like to see how he adapts to his new responsibilities and demands on his time. For these reasons, we will not currently be considering the fund for inclusion on the Wealth 150 list of 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.

Find out more about this fund including how to invest

Please read the key features/key investor information document in addition to the information above.

The value of investments can go down as well as up, this means you could get back less than you invested. Therefore all investments should be regarded with a long term view. No news or research item is a personal recommendation to deal. If you are unsure about the suitability of an investment please contact us for advice.
Important information - Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice. No news or research item is a personal recommendation to deal.


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