Rathbone Income fund
Andy Parsons, head of investment research at The Share Centre, considers the Rathbone Income fund to add diversity down the market cap spectrum in a UK equity income portfolio.
"The UK Equity Income sector is one of the most popular and also the most difficult for investors to choose from. The real flexibility that the managers of the very large funds have is widely disputed given the scale and vast sums they have to invest. In addition, the sector clearly stipulates funds must achieve a minimum income yield of 110% of the FTSE All Share index.
"For the vast majority of UK equity income funds, the core dividend yield is primarily driven by a small number of FTSE 100 companies. The top five FTSE100 companies accounted for just over 30% of the total dividend payments made during the first half of 2011 and when expanded out to include the next top ten payers, just over 60% of all dividend payments come from just a small handful of companies.
"Therefore, for investors to really appreciate the benefits and diversity of a specific UK equity income fund, they really need to explore, appreciate and understand the other key holdings within the portfolio.
"One fund that seeks income from further down the market cap spectrum is the Rathbone Income fund, managed by Carl Stick since January 2000. The fund looks to offer investors an attractive and maintainable income yield over time, but not to the detriment of capital growth and security. Carl adopts a two fold strategy - he combines a top down macro economic overlay with a bottom up stock picking methodology. He seeks out companies that have attractive valuations, specific dynamics in respect of the flow of future potential earnings, analysis of products and the management, and finally market sentiment.
"The fund currently has around 38% of its assets held in companies from the FTSE250, FTSE Small Cap and AIM markets, helping investors to create a blend within their overall UK equity income portfolio by looking for opportunities further down the market cap scale."