The 10 shares owned by 70% of UK equity income funds
24th April 2017 12:22
More than a quarter (26%) of the money managed by UK equity income funds is invested in just 10 dividend-paying companies, according to research by fund managers at Henderson Global Investors.
Seven in 10 of the 52 funds analysed in the study, which included open-ended funds alongside investment trusts valued above £200 million, hold all of these top 10 companies.
Henderson says the findings are symptomatic of a structural issue in the UK stockmarket: the top 10 companies pay half of all UK dividends, with the top 20 companies paying 70% of all UK dividends.
The 10 companies are:
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Ben Lofthouse, fund manager of Henderson International Income Trust says: "As equity income portfolios get larger, fund managers are forced to hold these same largest companies in order to receive enough dividends to pay all of their shareholders.
"It is further evidenced by the fact that, of the largest equity portfolios in the UK, the average percentage of the total portfolio held in these top 10 stocks was 39%. When the liquidity pool is small, fund managers simply have little choice."
Where should I invest for UK equity income?
Moneywise recommends three open-ended funds for UK equity income:
Managed by the UK's best- known fund manager, Neil Woodford, this invests primarily in UK-listed companies. It aims to provide a reasonable level of income together with capital growth.
By investing in predominantly medium-sized companies, it aims to deliver a high and growing quarterly dividend and the prospect of good long-term capital growth.
FUND:I3PM:Marlborough Multi Cap Income
With a bias to small and mid-cap companies, it seeks to generate an attractive and growing level of dividend income, plus long-term capital growth.
We also recommend two investment trusts for UK stock market income:
City of London Investment Trust (CTY)
is a core holding for investors looking for long-term growth in income and capital from UK shares. It has very low charges and a lower-risk, cautious investment style.
Finsbury Growth and Income (FGT)
aim is to provide income and growth by investing primarily in UK-listed companies. Manager Nick Train's long-term patience and deep understanding of his companies sets him apart from his peers.
This article was first published by our sister magazine Moneywise, available online here.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
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