First look at the portfolio

Steve Clayton - Fund Manager

13 March 2017

We'd like to say a big thank you to everyone who invested in HL Select UK Income Shares. We've just published the first completed holdings, and we're looking forward to keeping our investors in touch with how these companies perform.

View the portfolio breakdown

It has been a busy period since the launch of the fund, not least because Hargreaves Lansdown clients invested a total of £251m into the fund, which we have been investing ever since. We've used programme trades to get a lot of the funds invested at a brokerage cost of less than one hundredth of one percent. If only the Government did not charge 50 times that in stamp duty on most share purchases.

Some shares are easily bought, because huge volumes are traded every day, and those went into the programme trade. Others are harder to come by, perhaps because they are smaller companies or because a big slice is owned by a long term investor. We've used our market contacts to find sellers of these shares, block by block. So our building of the portfolio is ongoing, but we can show a big slice of the fund's structure because many positions are now complete.

If you go to the portfolio breakdown page, you can see the first twenty positions we are revealing and click through on each one to read why we have picked that share.

Key sectors

We've taken some big positions in consumer goods producers. These companies, like Unilever and Imperial Brands sell branded products to millions of consumers worldwide, each and every single day. Their historic track records of delivering reliable growth in profits and dividends speaks volumes. Unilever recently rebuffed a takeover approach from Kraft Heinz, a US consumer giant, backed by Warren Buffet. Unilever has gone on to announce a root and branch review of operations that is expected to raise margins and growth moving forwards.

Pharmaceuticals are another strong source of dividends in the market and we've taken positions in both AstraZeneca and GlaxoSmithKline. These are not without risk, for launching new drugs requires huge investments in clinical trials and lab work, with no guarantees. Astra is facing a pivotal year or two, with some key new drugs in late stage trials. If they make it to market as hoped, the prospects for growth could be exciting. Both have the potential to offer well above average yields and could be big contributors to the fund's income in the years ahead.

Property development fills us with horror, if done on a speculative basis, for if the building fails to sell or find a tenant all the money has been spent for scant reward. But if a property company earns its money from the rents it collects, less the cost of the borrowings it uses to acquire them with, then a far more durable source of income emerges. Tritax Big Box REIT does just that, letting vast distribution centres to major retail, e-commerce and logistic companies on long leases with upward-only rent agreements.

Some of the stocks in the fund are more growth oriented than others, so we have positions in names like WPP, which has already announced a 27% increase in its dividend since we acquired our first holdings. The advertising giant has sounded a note of caution on the outlook for FY17 but we believe this is small in the grand scheme of things and we like WPP's long term prospects. Playtech delivers the digital products and services that drive the industry that is gambling and has been hugely successful in doing so, delivering strong growth in cash, profit and dividends along the way. Other growth stocks within the portfolio are still in the process of position-building and will have to wait until future blogs.

Dividend stalwarts

There is a bedrock of the portfolio's income coming from dividend stalwarts like Pennon, the company that owns South West Water, and National Grid. Lloyds Banking Group is distributing a big slice of its earnings these days and generating a lot of capital, which earns it a place in the fund. Life Assurance is another great source of dividends and already, Legal & General, a 4% position in the fund has announced a 7% dividend increase and Standard Life has agreed to “merge” with Aberdeen Asset Management to create the UK's largest fund manager, stripping out £200m or more of costs along the way, if the deal goes through.

You can see more about all of the companies in the portfolio, once their positions are revealed by clicking the "Read More" button next to their name on the Portfolio Breakdown page. We hope you find it interesting and look forward to revealing more holdings in the weeks ahead.

View the portfolio breakdown

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