End of an era for uk equity income

Global equity income funds have been among the strongest sellers this year, but with the thirst for yield obviously still intact it's odd that a portfolio mainstay, UK equity income funds, have fallen so far out of favour.

End of an era for uk equity income


Cofunds had global equity income funds as the bestsellers on the platform in February, while the IMA’s latest statistics had them in its top five in January, behind three other equity sectors – global emerging markets, Europe, Asia Pacific ex Japan.

While GEM funds took in £223m in net retail inflows in the month, UK equity income funds achieved only £46m.

Think of the big name fund managers in this country in the past decade, and a fair few of them will be UK income managers like Neil Woodford, Adrian Frost and Bill Mott. So why are investors looking elsewhere?

A bad Mood(y’s)

Has there been reason for investors to be more cautious about the home market? The Moody’s downgrade happened late last month after this data was collated so that can’t be it. It certainly can’t have been the FTSE 100’s performance; that’s up around 10% this year, while the funds themselves have more or less matched that on aggregate. The yields on these funds haven’t come down significantly either.

With many of these funds holding a large proportion of their assets in more defensively minded companies – such as utilities, pharmaceuticals and tobacco – it may simply be that investors want to make hay while the sun shines and take the opportunity to add more risk now as the global economy continues its recovery.

With capacity becoming much more of an issue for fund groups today, it may be that investors already hold these giant £5bn-plus funds, are trimming their exposure – though not necessarily dumping the funds – and are looking at new areas for income generation.

Appetite for the new

Think how the industry has expanded in the past decade with the emergence of global equity income, emerging market debt, high yield, strategic bond funds, and even Ucits strategies all competing to offer you an attractive yield.

It would take a brave man to dismiss the prospects of the most esteemed managers operating in the UK today, so I won’t do that, but with the trend away from UK-centric portfolios in the past 10 years comes an appetite for something new.



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