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It has been an interesting period for the UK equity income sector. While
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Like many popular funds in the IMA UK Equity Income sector, the Artemis Income Fund has been poor in the short term. It would however be premature to write off experienced and talented managers like Adrian Frost and co-manager Adrian Gosden. The managers have been tweaking the portfolio at the margin and this could benefit performance going forward.
Over the course of 2007, the managers became less confident about the cash flows in businesses in the more economically sensitive sectors. The fund was therefore positioned into the more resilient businesses with exposure to areas like utilities, tobacco and telecoms.
More recently, the managers have been finding some attractively valued companies in the more ‘cyclical’ areas i.e. sectors which can be sensitive to the economic cycle. They have bought a property share and a recruitment firm for example. They have also been buying into some of the banks like HBOS and Lloyds but the focus is on what they perceive as the more resilient banks and where write offs from the credit crisis are likely to have a minimal impact on dividends. Overall, they are looking for businesses whose dividends are likely to grow and prove consistent despite current volatile markets.
Interestingly, the managers have bought a corporate bond in the fund for the first time in three years. This is not a bond fund but up to 10% can be held in corporate bonds when opportunities arise. This move signifies that the management team believe the bond market is looking attractive once again. This should help boost the yield on the fund and there is also some scope for capital growth.
In essence the fund’s philosophy has not changed. The managers are still on the look out for strong cash flows in companies and many of these happen to be in larger companies which currently make up 77% of the portfolio, the highest it’s ever been. The remainder is in medium sized and smaller companies plus a small exposure to a corporate bond.
The fund has an historic yield of 4.3% (variable and not guaranteed) and the managers expect dividend growth to be around 8% this year. The basic principle of equity income investing has not gone away as it looks to offer total returns in the form of income and long term capital growth. Equity income can still form the backbone to an investors’ portfolio and we believe this fund offers a fine way to benefit from long term growth.
» Key Features of the Artemis Income Fund
Fund research is provided by Hargreaves Lansdown. Hargreaves Lansdown is an independent broker offering unit trust, stockbroking and other pension and investment services. No news or research item is a personal recommendation to deal.