- The fund has been co-managed by Ciaran Mallon and James Goldstone since May 2020
- They are experienced UK income investors
- The process is focused at the stock level and fully incorporates ESG considerations
- The fund does not currently feature on the Wealth Shortlist of funds chosen by our analysts for their long-term performance potential
How it fits into a portfolio
The Invesco UK Equity Income fund aims to provide long-term income and capital growth, by mainly investing in UK companies. This fund could form part of an income portfolio or add UK exposure to a broader investment portfolio.
Ciaran Mallon and James Goldstone were appointed co-managers of the Invesco UK Equity Income and UK Equity High Income Funds in May 2020. The two funds are run using a similar process and philosophy.
Mallon joined Invesco in 2005 and manages several UK equity funds. He began his career at HSBC as an investment analyst, before moving to United Friendly Asset Management in 1999 as a fund manager. Goldstone joined Invesco in 2012 and manages UK and Pan European equity funds. He began his career in 2001 in equity sales at Credit Lyonnais and had similar roles at HSBC and Dresdner Kleinwort.
The Invesco UK Equity Income and Invesco UK Equity High Income funds have been run in the same way in the past, with significant overlap in their investments. We expect the funds will remain similar under Mallon and Goldstone, but it is likely there will be modest differences over time to reflect their respective objectives.
Both funds invest in around 50 companies and are managed using a similar investment process. The UK Equity Income fund aims for income and capital growth, whilst the UK Equity High Income fund targets a higher income than the former fund and the UK market. The UK Equity Income Fund may experience less capital growth. Both funds currently have similar yields but should diverge over time.
Both funds mainly invest in larger companies, though UK Equity Income invests some higher-growth and higher-risk small and medium-sized companies. Both also have the flexibility to invest up to 20% overseas. It is likely there may be a few companies held in one fund and not the other. There is also a very small residual position in unlisted investments. This is being reduced over time, with no investment in unquoteds expected in the future. Unlisted investments increase the risk of a fund because the holdings cannot be easily sold.
Mallon and Goldstone believe that well-managed companies with sustainable and rising dividends will see their share prices grow over time. This combination could deliver both income and capital growth, though neither are guaranteed. They aim to manage risk by keeping the fund diversified and investing across a range of sectors.
The investment process begins with ideas from inside the UK Equity team, Invesco’s wider investment group or from external brokers. Mallon and Goldstone then carry out company research to assess the company’s prospects and suitability for the fund. They decide how much to invest and keep a close eye on the holding to ensure it remains appropriate.
There are four categories of companies in the fund: capital growth, capital security, dividend security and dividend growth. Capital growth companies are expected to grow earnings quickly, no matter what happens in the wider economy. Capital security holdings should offer steadier growth. Dividend security companies should have sustainable dividends supported by good earnings, whilst dividend growth companies are expected to grow their dividends faster than competitors over the longer term. The amount in each of these categories between the funds will differ slightly, in line with their objectives. For example, UK Equity Income has more in capital growth whilst UK Equity High Income has more in dividend security.
The main focus is on individual company analysis, but the managers also incorporate investment themes in the fund. These include improving UK domestic demand, which could benefit house builders, so Barratt Developments is held. Other themes include international value. British American Tobacco is held as the managers believe it offers greater value than international competitors.
International growth taps into overseas growth markets, and includes companies such as premium drinks mixers brand Fevertree. Recovery focuses on companies whose earnings may be temporarily depressed but could bounce back, such as easyJet. Finally, transformers include companies using technology to power growth, including Next with its successful online platform.
Over the past 12 months new investments have been made in gold miners Newmont and Barrick Gold. PureTech, a diversified biotech company, which is one of the larger positions has been reduced as performance has been strong. DS Smith, the packaging company, has been sold as it had also performed strongly through the COVID crises. This provided an opportunity to use profits to invest in new investment ideas.
Invesco is one of the largest investment managers in the UK. It offers a large range of funds across a number of sectors and each follows a clear, disciplined investment process.
Mallon and Goldstone incorporate environmental, social and governance (ESG) factors into their company analysis. As long-term investors, they believe this helps to highlight businesses that use more sustainable practices and could thrive over the long term. This could drive long-term dividends and it could also uncover risks that are less obvious through more traditional company analysis. They are aware of ESG ratings but prefer to try and identify the potential for ESG improvements and engage with company management to bring about positive change.
The fund is available on the HL platform for a 0.86% annual ongoing fund charge, which includes a saving of 0.05%. The standard charge is 0.91%. The HL platform fee of up to 0.45% a year also applies.
Part or all of the annual charge is taken from capital rather than income generated, increasing the potential for your investment’s capital value to be eroded.
Mallon and Goldstone have only managed this fund since May 2020, but they are experienced investors having managed various UK equity funds to good effect over many years.
The UK Equity Income fund currently yields 3.2% compared to 3.6% for the UK Equity High Income fund. However, there is marginally more dividend growth potential in the Equity Income fund, which could allow income to grow faster than in the Equity High Income fund. Neither the income or capital returns are however guaranteed.
Over the last 12 months to the end of April 2021, the UK Equity Income fund returned 21.8%* vs the FTSE All Share return of 25.9%. The fund’s holding in Next helped performance but having less in miners such as Glencore, which performed well, detracted. Past performance isn’t a guide to future returns.
The second half of 2020 saw markets recover. Positive signs of a COVID vaccine, a Biden victory in the US presidential election and the perceived resolution of Brexit helped to improve investor sentiment. Some of the more cyclical sectors, which are more sensitive to the health of the economy, such as mining, travel & leisure and general retailers performed strongly whilst healthcare, utilities and oil & gas underperformed. In this period the fund returned 10.1% vs the FTSE All Share return of 9.3%. IP Group, which partners with universities to develop life sciences and clean energy technology, and PureTech Health helped performance.
|Annual percentage growth|
| Apr 16 -
| Apr 17 -
| Apr 18 -
| Apr 19 -
| Apr 20 -
|Invesco UK Equity Income||11.7%||-2.0%||-0.9%||-31.6%||21.8%|
|FTSE All Share||20.1%||8.2%||2.6%||-16.7%||25.9%|
Past performance is not a guide to the future. Source: *Lipper IM to 30/04/2021.