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Hargreaves Lansdown to launch low cost income fund

  • HL Select UK Income Shares Fund launches 2nd March 2017
  • Second of the new range of HL managed equity funds
  • Fund offers monthly income with estimated yield of 3.9%
  • Fund will have a lower annual charge than 91.4% of the IA UK equity Income sector
  • About the HL Select UK Income Shares Fund

Hargreaves Lansdown is launching the HL Select UK Income Shares Fund, building on the outstanding success of the £225 million HL Select UK Shares Fund launched in December last year.

HL Select UK Income Shares fund will be an actively managed portfolio of our favourite dividend-paying shares. Aiming to offer income and capital growth over the long term, with a high level of transparency and the additional investor insight HL Select investors enjoy. All for less than the average cost of a UK Fund.

The estimated 3.9% yield at launch will be paid monthly.

Steve Clayton, fund manager, HL Select UK Income Shares Fund:

"The new type of investor experience and unique level of fund manager communication has been a huge hit with investors.

With interest on cash bumping along the bottom and inflation climbing, there is an increased focus on generating sustainable income from the equity markets. But income investing isn’t just about the next dividend. It's about creating the combination of rising income, backed by capital gains that maximises wealth over the long-term. A very high yield today can mean a lower total return in the long run, because the company isn't reinvesting enough in future growth.

We want to provide investors with an attractive level of income today, but that’s not at the expense of long-term dividend growth. Companies that grow their dividends usually see their shares appreciate over the long-term too - in this way a rising income can also translate into long-term capital growth.

Monthly income is somewhat of a rarity from an equity fund and we aim to smooth payments to provide a consistent income which grows over time.

Dividends are just as valuable for growth; reinvesting dividends has significantly boosted returns over the long term."

Reasons why investors chose the HL Select UK Shares Fund

  1. Investment strategy
  2. HL Fund management
  3. Level of Investor insight
  4. Transparency of holdings
  5. Ongoing charge of 0.60%

Source: Hargreaves Lansdown: numbers who rated each issue as a very important factor when choosing to invest in the first HL Select fund launched in December 2016.

HL Select investor communication

As with the HL Select UK Shares fund, investors will receive a detailed explanation of the investment case for all of the fund’s holdings once our position has been built or sold. We’re going to offer investors a lot more, for a lot less than the cost of the average fund. Investors will:

  • See every shareholding once we’ve finished dealing, not just the top 10
  • Know exactly why we hold each share
  • See a breakdown by sector and company size
  • Know what’s happened in the portfolio, when it’s happened, not months later
  • Read our latest thoughts on portfolio holdings, and the market, when it matters most
  • Receive straightforward portfolio performance reports, every month
  • About the HL Select UK Income Shares Fund

    The HL Select UK Income Shares Fund will launch on 2nd March 2017 at a £1 fixed launch price and will sit in the Investment Association UK Equity Income sector. Applications close on 1st March 2017.

    The fund’s portfolio will be of around 30 holdings and concentrated on our best ideas.

    The HL Select UK Income Shares Fund investment style

    We seek businesses that we believe can reliably pay increasing dividends years out into the future. We focus on companies' financial strength, their ability to generate cash and their prospects for profit growth. Please note yields will vary and are not guaranteed. Not every holding will tick each box but most of the companies we invest in will share many of the following characteristics:

    • A sustainable starting yield
    • A company must have the free cash flow to support its current dividend, as well as investing back into the business for future growth.

    • Debts firmly under control
    • Debts, dividends and downturns do not mix well. We want stocks that can shrug off any economic storms and carry on rewarding shareholders, rather than have to kowtow to their bankers.

    • Strong returns, backed by cash flow
    • High margins and high returns on capital attract us and tend to be backed up by strong cash flows – the makings of a great dividend stock.

    • Recurring revenues
    • Customers that come back again and again make it easier to pay a consistent dividend, so we value businesses with recurring revenues highly.

    • Strong track record
    • A history of paying dividends, and especially rising ones, can be a good sign of a shareholder-friendly attitude in the boardroom.

    • A balanced approach

    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 income today and growth for the future, to achieve a compelling overall long-term return for our investors. We are free to invest in companies of all sizes, and our portfolio will include large, medium and some higher risk smaller companies. Please remember investments, and any income from them, will fall as well as rise in value so investors could get back less than they invest.

    We will hold around 30 stocks at launch, spread across 15 different sectors. This means that every holding could make a real difference to performance, though it also increases risk compared with a more diverse portfolio. That's why we focus so much on financial strength, as well as dividend potential.

    Low cost

    The HL Select UK Income Shares Fund will have an OCF of 0.6% and will be:

    • Cheaper than 91.4% of the IA UK Equity Income sector
    • Cheaper than 90% of all active funds
    • 36% cheaper than the average active fund

    HL Vantage platform fee of up to 0.45% also applies.