New equity income fund offers real attractions to income seekers

Sheridan Admans, investment research manager at The Share Centre, shares his thoughts on the recent launch of the Legg Mason US Equity Income Fund.

"We are pleased to see the introduction of a fund that offers attractive yields to those looking for income from a portfolio of US investments. The recent launch of the Legg Mason US Equity Income fund to the UK market should allow income seeking investors to have some diversification in their portfolio and gain exposure to the US.

"The current global economic issues have seen increased emphasis on the importance of investing for income, as investors are concerned over the limited growth opportunities the market is providing. 

"Managed by ClearBridge Advisors, the fund is designed to exploit the growing propensity of US companies to pay and raise dividends. The fund looks to identify high quality companies that offer attractive, sustainable income combined with dividend growth and capital appreciation.

"As for the potential quality of many of the underlying companies, examples of the names often seen in the US element of an equity income portfolio are Exxon Mobil, Procter & Gamble, AT&T, Chevron and Microsoft.

"There are a number of key reasons why this region is becoming an attractive proposition. US corporate balance sheets for many companies are in the strongest state they've been for many years, which has led to increasing rewards for shareholders through dividend payments rather than initiating share buyback schemes. Since the beginning of 2011, 117 S&P 500 companies have initiated or raised dividends. Changes to US taxation rules also means returning of capital through dividends has become an increasingly attractive proposition.

"In addition, the US population is aging. Over the next 20 years the number of over 65's will double, meaning shareholders are increasingly looking to supplement their retirement income. This has forced companies to change their attitude and stance on dividend payments.

"Whilst the lure of the US may not yet appeal to all equity income investors, for those looking to diversify their portfolio geographically, this may well be a region of interest.  Alternatively, for those venturing outside of the UK for the first time, they may find a global equity income fund more appealing. However, it is worth noting that it is highly likely that a significant proportion of the underlying holdings of a global equity income fund will be exposed to the US."