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The world's best income market?

Why our experts think now could be the time to invest in the UK

Important - The value of investments can fall as well as rise, so you could get back less than you invest, especially over the short term. The information shown is not personal advice, if you are unsure of the suitability of an investment for your circumstances please contact us for personal advice. Yields are variable, not guaranteed nor a reliable indicator of future income. All yields correct as at 31 August 2018 unless otherwise stated.

Dominic Rowles
Investment Analyst

There’s no place like home

Trends come and go. Today’s fashion hit is tomorrow’s faux pas.

Unlike the fashion industry though, the best time to invest is often when an area is off-trend.

Investing in unloved areas gives you the chance to invest at great prices. You could benefit if the area returns to favour and the price of your investment rises, though of course there are no guarantees.

There aren’t many stock markets less fashionable than the UK at the moment, especially after the recent volatility. Uncertainty over Brexit and other political instability has knocked investors’ confidence. They’ve pulled almost £10bn out of UK funds since the European Union referendum in June 2016. And lots of it’s been reinvested overseas.

But we don’t think investors should be so quick to jump ship.

See what Mark Dampier, Head of Research, thinks about recent volatility

Still plenty of reasons to invest

The UK is home to some of the world’s best businesses. From stock market giants selling their products around the globe, to smaller companies with the potential to be future market leaders. Some of them have been around for decades and we don’t expect them to turn bad overnight.

Consumers will carry on buying goods like food, toothpaste or tobacco, and use other services, no matter what’s going on with Brexit. So we’re confident lots of companies will still be able to generate cash, just as they’ve done in the past. We think this will drive share prices over the long term.

Even if you’re worried about the UK economy, the UK’s biggest companies make about three quarters of their money overseas. That means they aren’t as tied to the UK economy as you might think.

The world’s best income market?

Not only that, the UK is still one of the best places to get paid a regular income. That’s great in times of uncertainty, since dividends don’t fluctuate nearly as much as share prices.

For a long time it’s been one of the world’s highest-yielding stock markets. It’s now yielding 3.78%, although all yields are variable and not a reliable indicator of future performance.

That yield is higher than at almost any point in the last 20 years. The main exception is the 2008 financial crisis when share prices fell so sharply that dividend yields reached new highs (when share prices fall, their yields rise, and vice versa). For comparison, the broader global stock market yields just 2.36%.

FTSE All-Share yield

Yields are variable and not guaranteed or a reliable indicator of future performance. Source: Bloomberg 30/09/1998 to 30/09/2018.

Britain has an open and well-regulated economy. Shareholders are put at the centre of company decisions, and we expect UK companies to keep paying world-leading levels of dividends.

And the UK stock market isn’t just for income investors. If you’re investing for the long term, reinvesting dividends is a tried-and-tested way to grow your wealth.

How you could take advantage

There are lots of ways to invest for income. You could invest in large, established businesses with a long track record of paying high dividends to investors. Or you could invest in riskier smaller companies with the potential to increase dividends as they grow over the long term.

If you don’t want to choose the companies yourself, you could leave the tough decisions to a fund manager. There are plenty of experienced UK fund managers with great long-term track records. As always please remember investments can fall in value as well as rise and you may not get back what you invest. Read on to find out more about some of our favourites.


Next - fund ideas


Richard Troue
Head of Investment Analysis

HL Multi-Manager Income & Growth

Have your cake and eat it

When it comes to income investing, we think you can have your cake and eat it.

The holy grail for an equity income fund is to grow the income paid to investors over time, while increasing the value of their initial investment. This provides a strong foundation for the income to potentially keep rising in future.

The HL Multi-Manager Income & Growth Trust has done just that.

We’re proud to say it’s reached an important milestone. If you invested in the fund at launch in 2002, you’d have now had your initial investment back in income payments alone. Plus the value of your remaining investment would have more than doubled.

For example, £10,000 invested at launch would have since been paid back to you as income. And the value of the rest of your investment would be worth more than £21,600*.

If you’d chosen to reinvest the income, your investment would have quadrupled. A £10,000 investment would now be worth more than £40,200. But please remember past performance isn’t a guide to what will happen in the future.

A one stop shop

What’s great is you can switch between getting paid the income, or reinvesting it for growth. At an earlier stage of your investing life you might be focused on growing on your wealth as much as possible. But in later years, perhaps in retirement, you may prefer to start taking the income instead.

Equity income funds can serve more than one purpose.

If you’re investing for income, it’s good to know the fund currently yields 4.1%, which is more than the broader UK stock market. Income payments from the trust are made on a monthly basis. The fund takes charges from capital, which can increase the income it pays at the cost of extra growth.

Of course, dividends are variable and not guaranteed, so this isn’t a reflection of what you’ll get paid in future.

Cumulative income paid on an initial £10,000 investment

Past performance is not a guide to the future. Source: *HL 30/09/2018

HL Multi-Manager Income & Growth - performance since launch

Past performance is not a guide to the future. Source: Lipper IM 30/09/2018, dividends reinvested

How do the managers achieve this?

The HL Multi-Manager Income & Growth Trust, run by our sister company Hargreaves Lansdown Fund Managers, blends a combination of funds into a single investment.

Lee Gardhouse and Ellen Powley, co-managers, choose funds run by managers with great track records, which they think will sit well next to each other. The hope is that at least one part of the portfolio will be performing well at any one time. It could also help income grow more smoothly over the long term.

For example, funds investing in larger companies can be combined with funds investing in riskier smaller companies. Kate Marshall, Senior Investment Analyst, looks at how this could work in practice below. The trust also has some flexibility to invest in some overseas funds, which provides further diversification.

Investing in companies that provide a growing dividend is a good way to grow your wealth over the long term. And this fund could be a great way for those in need of a little help to create a well-diversified and balanced income portfolio. We think the work involved in running the fund – and the potential results – more than justify the additional costs associated with a multi-manager approach.

Annual percentage growth
Sep 2013 -
Sep 2014
Sep 2014 -
Sep 2015
Sep 2015 -
Sep 2016
Sep 2016 -
Sep 2017
Sep 2017 -
Sep 2018
HL Multi-Manager Income & Growth Trust 9.1% 3.8% 12.8% 8.1% 4.6%
IA UK Equity income 7.1% 3.1% 11.2% 10.7% 3.5%

Past performance is not a guide to the future. Source: Lipper IM to 30/09/2018

More information on this fund including charges

HL Multi-Manager Income & Growth Key Investor Information

HL Multi-Manager Income & Growth


HL Multi-Manager Income & Growth

Invest now

Kate Marshall
Senior Investment Analyst

Artemis Income

Adrian Frost is one of the UK’s most experienced income fund managers. He’s run the Artemis Income Fund since 2002 and now also has the help of co-managers Nick Shenton and Andy Marsh.

The fund’s mainly focused on large companies that generate plenty of cash and have increased dividends at a steady pace over the long term.

Some of these businesses, such as GlaxoSmithKline and Vodafone, own recognisable brands. They offer essential goods and services to consumers, which helps support their cash flows.

A proven record

Frost has significantly grown investors’ income over the years, generating more than double the amount last year than from when he first took over the fund. For a manager to do this over a long period of time is impressive.

The fund currently yields 4%. This doesn’t indicate future returns though, as dividends are variable and not guaranteed. This fund also takes charges from capital, which can increase the income it pays at the cost of extra growth.

We think the fund makes a great contribution to an income portfolio. Evidently the managers of the HL Multi-Manager Income & Growth Trust agree, as it’s been held in the trust since its launch. Lee Gardhouse and Ellen Powley want to find managers they’re confident can boost both long-term performance and income growth – and that’s exactly what Artemis Income has offered so far.

This fund is run by one of our highest rated managers, who’s built a hungry team of income investors around him. And we have high hopes for its future.

Artemis income - performance since launch

Past performance is not a guide to the future. Source: Lipper IM to 30/09/2018

Annual percentage growth
Sep 2013 -
Sep 2014
Sep 2014 -
Sep 2015
Sep 2015 -
Sep 2016
Sep 2016 -
Sep 2017
Sep 2017 -
Sep 2018
Artemis Income 8.7% 0.4% 11.2% 11.8% 4.0%
IA UK Equity Income 7.1% 3.1% 11.2% 10.7% 3.5%

Past performance is not a guide to the future. Source: Lipper IM to 30/09/2018

More information on this fund including charges

Artemis Income Key Investor Information

Artemis Income


Artemis Income

Invest now

Kate Marshall
Senior Investment Analyst

Marlborough Multi Cap Income

Marlborough Multi Cap Income offers something a little different.

It mainly invests in small and medium-sized companies, instead of the larger firms that most income funds target. They aren’t often thought to pay high dividends, but lots of them do.

They also offer greater growth potential because they’re at an earlier stage of their development. And as they grow into bigger businesses, the cash they generate and dividends they pay have the chance to grow too. Being at an earlier stage of their growth path does make them higher risk though.

A rising star

The fund’s been held in HL Multi-Manager Income & Growth since launch in 2011. It’s run by Siddarth Chand Lall who’s a younger income manager. He also has the support of Marlborough’s UK smaller companies team, who we’ve rated highly for a long time. He’s a great example of an up-and-coming manager that Lee Gardhouse and Ellen Powley picked out, and expect to hold onto for years to come, just like Adrian Frost.

We think this fund has great long-term potential. It currently yields 4.3%, but this shouldn’t be seen as a guide to how much income it’ll pay in future as dividends can change and aren’t guaranteed. Again charges are taken from capital which can increase the income it pays at the cost of extra growth.

It could sit well next to a fund like Artemis Income, and provide useful diversification to an income portfolio. We’re excited about its future prospects.

Marlborough Multi Cap Income - performance since launch

Past performance is not a guide to the future. Source: Lipper IM to 30/09/2018

Annual percentage growth
Sep 2013 -
Sep 2014
Sep 2014 -
Sep 2015
Sep 2015 -
Sep 2016
Sep 2016 -
Sep 2017
Sep 2017 -
Sep 2018
Marlborough Multi Cap Income 11.3% 14.0% -0.1% 12.3% 3.3%
IA UK Equity Income 7.1% 3.1% 11.2% 10.7% 3.5%

Past performance is not a guide to the future. Source: Lipper IM to 30/09/2018.

More information on this fund including charges

Marlborough Multi Cap Income Key Investor Information

Marlborough Multi Cap Income


Next - Investment Trust ideas


Marlborough Multi Cap Income

Invest now

Jonathon Curtis
Investment Analyst

Bagging a discount

There’s a barometer for how investors feel about an investment trust or specific area of the market – the discount or premium.

Investment trusts can be bought at a price above (a premium) or below (a discount) what their underlying investments are worth. If investors are optimistic, it’s more likely a trust trades at a premium. If they’re worried, sceptical or have lost interest, it might trade at a discount.

The UK is out of favour at the moment, so that’s what’s happened to many UK-focused investment trusts.

Discounts aren’t necessarily a bad thing though. They can give you an opportunity to invest at an attractive price. If the trust returns to favour, the discount could narrow and it could gain in value. There’s no guarantee this will happen though, the discount could always widen even more.

Now could be an interesting time to take a closer look at UK-focused investment trusts trading at a discount. The value of investments can go down as well as up so you could get back less than you invest.

Edinburgh Investment Trust

  • Current discount – 9.24%
  • 12-month average – 8.7%

Source: Funds Library, 09/10/2018.

The trust’s manager Mark Barnett thinks the UK will fare better than lots of investors expect. Worries about Brexit are overblown and UK companies will keep doing well, in his view. It means some share prices have fallen and don't reflect their growth potential. He’s used this opportunity to invest in what he thinks are quality companies at attractive prices.

He takes a truly active approach to managing Edinburgh Investment Trust. He invests in a relatively small number of UK companies he thinks will grow over the long term. With so few investments, each one can have a big impact on the trust’s performance, but it does add risk.

The manager thinks companies that make most of their profits in the UK, rather than overseas, offer the best opportunity. He likes those in the financial, consumer and real estate sectors. Many are unpopular at the moment. But once their true potential is recognised by other investors, he believes their share prices could rise.

The trust hasn’t performed so well recently because these areas have been so unpopular. Barnett runs a number of funds, including Invesco Income and High Income, and has a good long-term record of investing in UK companies, but this isn’t a guide to future performance.

Performance under Mark Barnett

Past performance is not a guide to the future. Source: Lipper IM 30/09/2018

Annual percentage growth
Sep 2013 -
Sep 2014
Sep 2014 -
Sep 2015
Sep 2015 -
Sep 2016
Sep 2016 -
Sep 2017
Sep 2017 -
Sep 2018
Edinburgh Investment Trust 5.38% 17.97% 8.47% -0.55% 1.05%
FTSE All-Share 6.09% -2.3% 16.82% 11.94% 5.87%

Past performance is not a guide to the future. Source: Lipper IM to 30/09/2018

Dividends paid by the trust have also gradually been getting bigger. Over the past four years Barnett’s grown the income paid by an average 3.2% per year.

The trust’s current yield is 3.9%. This isn’t a reliable indicator of future income.

Key Investor Information

Find out more about Edinburgh Investment Trust


Temple Bar Investment Trust

  • Current discount – 7.48%
  • 12-month average – 5.62%

Source: Funds Library, 09/10/2018.

Manager Alastair Mundy likes to do things differently from the crowd. In Temple Bar Investment Trust he invests in unloved companies that can be bought at valuations he thinks are low, with a share price that doesn’t reflect their potential. Mundy will only invest if he thinks the companies will become loved again, at which point their share prices could rise.

With the way lots of investors currently feel about the UK, there are lots of opportunities for managers like Mundy. He invests in companies like M&S and Travis Perkins, whose share prices have been in the doldrums for a long time. If their share prices fall further, he doesn’t view it as a bad thing. Instead he sees it as an opportunity to buy more shares at an even lower price. He thinks they’re still quality businesses and expects them to turn around eventually.

The trust isn’t all about company shares though. The manager has some flexibility to invest in other assets like bonds, gold and silver. He uses these to provide some security in case the market takes a turn for the worse.

Mundy’s prepared to accept short-term disappointment in pursuit of long-term gains. His performance has lagged the benchmark recently, but it’s been much better over the long term. Since he took over the trust in June 2000 it’s grown 405%* in share price terms, compared with 154% for the broader UK market. As always, past performance isn’t an indication of future returns.

Performance under Alistair Mundy

Past performance is not a guide to the future. Source: *Lipper IM 30/09/2018

Annual percentage growth
Sep 2013 -
Sep 2014
Sep 2014 -
Sep 2015
Sep 2015 -
Sep 2016
Sep 2016 -
Sep 2017
Sep 2017 -
Sep 2018
Temple Bar Investment Trust 5.48% -10.78% 10.51% 22.4% -1.08%
FTSE All-Share 6.09% -2.3% 16.82% 11.94% 5.87%

Past performance is not a guide to the future. Source: Lipper IM to 30/09/2018

Mundy’s increased dividends every year he’s managed the trust. Last year he increased income paid to investors by 5% compared to the year before, with the yield currently at 3.4%. These figures aren’t a reliable indication of future income.

Key Investor Information

Find out more about Temple Bar Investment Trust


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