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Investment Times

Fund manager outlook: Leigh Harrison of Threadneedle UK Equity Income

| 24 December 2014 | A A A
Fund manager outlook: Leigh Harrison of Threadneedle UK Equity Income

No recommendation

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

The fund manager outlooks should not be seen as a personal recommendation to invest or make any changes to a portfolio. Please note Hargreaves Lansdown and the fund groups do not necessarily share these views. All stock market investments will fall as well as rise in value so investors could get back less than they invest. All investments should be regarded with a long-term view.

Leigh Harrison has built an excellent reputation managing UK equity income portfolios, in a career spanning over 25 years. His flexible, common sense approach, investing in high yielding companies alongside businesses capable of strong growth and rising dividends, has been one of the factors behind his success. Along with Richard Colwell, he is manager of the Threadneedle UK Equity Income Fund, a good income and growth fund investing in the UK stock market.

Find out more about the Threadneedle UK Equity Income Fund

What is your outlook for the market in 2015?

No recommendation

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

We continue to like UK equities, and believe that the FTSE's dividend yield of around 3.5% should remain an attractive characteristic in a world where bond yields remain depressed. Investors who reinvest their dividend income (to benefit from the compounding effect) should be able to achieve reasonable returns compared to those available on other assets. Although equities have enjoyed a meaningful valuation re-rating over the past few years, we continue to find attractive opportunities, while our bottom-up approach means the portfolio is not dependent on a buoyant market to generate performance.

What are your views on the economy?

UK growth has been good compared with the majority of developed markets, but the recovery has largely been led by the housing market. The imbalance in the mix is exemplified by the UK's current account deficit which has reached record levels. Wage growth will continue to be a key variable watched by the Monetary Policy Committee, and some measures of this have increased from low levels. Going into 2015, we believe that uncertainty surrounding the May election is likely to weigh on the economy. Current expectations are for a hung parliament as the Conservatives and Labour struggle to poll 60% in aggregate; as many as 85 seats (out of 650) could be held by other parties. Political risk around election time will likely result in sterling depreciation. Overall, we predict economic growth of 2% in 2015, a little below the consensus forecast.

Do you think interest rates will rise in 2015?

We believe that the US Federal Reserve will begin to increase rates next year, but it will do so slowly. The overall policy environment should remain very accommodative. There is a qualitative difference between the disinflation seen in the US (driven by lower energy and food prices, which help the consumer) compared to the generalised price weakness that is being seen elsewhere in the world (which largely reflects the absence of any meaningful economic recovery and correspondingly weak demand). In the UK, it is expected that the Bank of England will not raise rates until the third or fourth quarter of next year, and at a pace of around 0.5% per year.

What one stock would you buy and hold for 10 years?

Rentokil. We feel that the stock's current valuation does not reflect the increasing free cash flow generation potential of the business. Encouragingly, the management now appears to be focusing on business areas with high returns on capital, with the business model centring on repeat business and pricing power in the pest control segment. The market position in the UK is strong and there is the potential for increased returns in the US following an acquisition in pest control. Successful disposals and strong cash generation also points towards sustained financial strength.

View the Rentokil factsheet

Leigh Harrison's career track record

Our quantitative research allows us to piece together a fund manager's track record across different funds and compare it with a benchmark. These composite manager track records are available to Hargreaves Lansdown clients in the 'HL Research' tab on our new online fund factsheets.

Please note this fund takes charges from capital, which can boost the income, but reduces the potential for capital growth.

Please remember past performance is not a guide to future returns.

Dec 09 -
Dec 10
Dec 10 -
Dec 11
Dec 11 -
Dec 12
Dec 12 -
Dec 13
Dec 13 -
Dec 14
Threadneedle UK Equity Income
annual growth
12.4% 6.2% 15.7% 25.6% 9.0%

View the Threadneedle UK Equity Income factsheet

Threadneedle UK Equity Income Fund Key Investor Information Document

The value of investments can go down in value as well as up, so you could get back less than you invest. It is therefore important that you understand the risks and commitments. This website is not personal advice based on your circumstances. So you can make informed decisions for yourself we aim to provide you with the best information, best service and best prices. If you are unsure about the suitability of an investment please contact us for advice.