Schroder Income fund

And Parsons, head of investment research at The Share Centre, picks a contrarian income fund and highlights the benefits of investing in the unloved.

"The Schroder Income fund has been managed by Kevin Murphy and Nick Kirrage since May 2010 and in order to achieve its income aim, the fund holds value-oriented large and mid-cap UK equities.
 
"In recent years economic turbulence has seen investors wary of investing in the UK, however many companies have been improving their fundamentals, such as reducing debt and refining balance sheets, and are now in a better condition than they were before 2008. This means these managers seek to identify sound companies with strong fundamentals that appear to be out of favour with the markets and as market sentiment improves, benefit from an increase in their share prices. It may also mean the fund holding companies that are currently not paying a dividend.
 
"These principals are based on the belief that the markets are inefficient and therefore in the short term, share prices are more volatile than the underlying fundamentals of a company and therefore creating pricing anomalies.
 
"By the very nature of their management style, there may be occasions when performance can struggle, however investors need to focus on the longer term time periods where the belief and conviction adopted to go against the tide, has come to fruition. Whilst the fund may have suffered during 2011, performance significantly improved in 2012 and over three years and five years on a cumulative position, the fund is ranked second and first quartile respectively.
 
"The fund currently has a strong bias towards both the financials and services sectors. Current top ten holdings not only include strong dividend paying stocks such as  Astrazeneca, GlaxoSmithKline and Vodafone, but also old traditional dividend stalwarts prior to the financial crisis such as RBS and Lloyds, neither of which are currently paying a dividend."