Aviva UK Listed Equity Income: July 2023 update

In this fund update, Senior Investment Analyst Joseph Hill shares our analysis on the manager, process, culture, ESG integration, cost and performance of the Aviva UK Listed Equity Income fund.

• Manager Chris Murphy has more than three decades of investment experience
• The fund blends companies offering a high yield with others the managers think are capable of strong dividend growth
• The fund has outperformed the FTSE All Share index since Chris Murphy took over as manager
• This fund features on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits into a portfolio

The Aviva Investors UK Listed Equity Income fund aims to generate a combination of income and growth over the long term. This includes a target to deliver an income return greater than the FTSE All Share index. The fund could form part of an income focused portfolio, or part of a broader portfolio looking to add investments in UK companies.

Manager

Chris Murphy has managed the fund since April 2009. He has over three decades of investment experience having started his career as a UK equity analyst in 1988. He joined Aviva Investors from Framlington Investment Management in 2006.

Murphy was joined by co-manager James Balfour in June 2016. Balfour joined Aviva Investors in 2012 as part of the graduate training scheme initially as a UK equity analyst before progressing to Assistant Fund Manager. The two co-managers have sector specialisms to support the wider team’s idea generation and we think these additional analyst responsibilities are complementary to their fund management role. They are part of a UK equities team of six.

Process

The managers target generating an income of more than the FTSE All Share index, alongside capital growth over the long term. They do this through investing in companies they believe have a sustainable competitive advantage over their peers, and so can grow their cash flow and have the potential to pay a growing dividend over the long run.

They look to invest in 40-75 companies with predictable, stable cash flows that could deliver capital growth and income through the market cycle. Lots of these are large companies, many with global operations. That means their success can depend on the state of the global economy, not just how well the UK does. The managers also invest more than some peers in medium-sized and smaller companies, which have the potential for higher growth but can add risk.

The managers feel that the UK is likely to be past the worst for inflation and the economy and that conditions should improve going forward. They feel the valuation of the UK market is attractive relative to its history and to overseas markets.

Culture

We think the culture at Aviva is a collegiate one with lots of support and collaboration from investors around the business. Managers enjoy and can make use of the resources that come with being part of a large organisation. Fund managers are rewarded based on one and three year performance, and bonuses are paid out over a period of time, which encourages a long-term commitment to both unit holders and the parent company. Managers are rewarded in Aviva shares as well as cash, which we like as it signals a commitment to the firm which is positive for investors.

ESG Integration

Aviva is widely recognised as a leader in responsible investment. It was a very early adopter of the Principles for Responsible Investment and ESG is deeply embedded in the firm’s culture and investment decision making. They also have a team of more than 30 ESG analysts who produce ESG research to assist fund managers and maintain the firm’s proprietary ESG scoring tool.

The firm monitors, engages with, and, where appropriate, intervenes, on matters than can have a material impact on the long-term value of their clients’ investments – issues such as board diversity, human rights abuses and greenhouse gas emissions. The rationale for each vote against management or abstention is made public in a voting history report, updated monthly, and engagement case studies are available throughout the website.

The firm also produces a significant number of detailed and thought-provoking articles on various ESG-related topics. Aviva offers a range of funds that aim to meet the needs of a wide range of responsible investors, including a sustainable outcomes fund range linked to the United Nations Sustainable Development Goals (SDGs), but all Aviva Investors funds exclude controversial weapons.

Cost

The annual fund management charge is 0.81%, with a saving of 0.32% for HL clients. This brings the ongoing charge down to 0.49%. The saving is achieved through a loyalty bonus which may be taxable if the fund is held outside of an ISA or SIPP. The HL platform charge of up to 0.45% a year also applies.

Please note the fund's charges can be taken from capital, which can increase the yield but reduces the potential for capital growth.

Performance

The fund has outperformed the return delivered by the FTSE All Share index since Chris Murphy took over in April 2009*. Over this period the fund has generally marginally lagged a rising market and protected its value better than the index when markets have fallen. Our analysis shows the fund managers’ stock selection has been strong over the long term and added value for investors. Past performance is not a guide to the future however, so there are no guarantees.

Over the last 12 months the fund has lagged the FTSE All Share index by 3.37%, delivering a return of 4.52%, compared with the index return of 7.89%. Our analysis suggests that the fund’s investments in communications company Vodafone Group and tobacco manufacturer British American Tobacco have been among the largest detractors from the fund’s performance over this period. However, its investments in aerospace business Melrose Industries and software company Sage group were among the largest contributors to the fund’s performance.

At the time of writing, the fund yields 4.51%. Income isn’t guaranteed, and yields aren’t a reliable indicator of future income.

Past performance isn't a guide to the future.*Source: Lipper IM 30/06/2023 with income reinvested.

Find out more about Aviva Investors UK Listed Equity Income, including charges

Aviva Investors UK Listed Equity Income Key Investor Information