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Why this UK equity income fund AVOIDS the most popular income stocks

17 Jan 2020

The UK equity income sector has a long-standing problem with concentration.

Did you know that just ten FTSE 100 companies account for around half of all UK dividends?[1]

And are you aware that many UK equity income managers own these same stocks?[2]

So even if you spread your money across several of these traditional funds, chances are you’ll remain heavily exposed to that handful of large companies, because most traditional funds hold them.

This creates concentration risk.

The good news is, there’s a simple solution.

Shunning the most popular income stocks has paid off

The FP Octopus UK Multi Cap Income Fund invests in big, small and medium-sized companies across the entire market, targeting a dividend yield of 4%.

This approach, which shuns many of the most popular traditional income stocks, has paid off.

In the twelve months to 31 December 2019, the first anniversary of the Fund’s launch, the FP Octopus UK Multi Cap Income Fund outperformed every other fund in the IA

UK Equity Income Sector on a total return basis. Please note, past performance is not a reliable indicator of future results. 

20192018201720162015
FP Octopus UK Multi Cap Income S Acc 30.4n/an/a n/a n/a
IA UK Equity Income sector average 19.8-10.511.48.86.4
FTSE All Share Index 19.2-9.513.116.81.0

*Source: Lipper. Returns are based on published dealing prices, single price mid to mid with net income reinvested, net of fees, in sterling.

More freedom to choose the most promising stocks

“The Fund isn’t constrained by investing in any one part of the market,” explains lead manager Chris McVey.

“That allows us to apply stringent criteria to our stock selection, including a focus on how reliable the dividend is. We can also consider the kind of dividend a company might pay a few years from now.”

Reduce your concentration risk

By adding a multi cap income fund to your portfolio, you reduce your reliance on any one stock or sector.

As you’ve seen, the approach taken by the FP Octopus UK Multi Cap Income Fund more than holds its own against other funds in the equity income sector.
 

Risks to bear in mind

The value of any investment can fall or rise, and you may not get back the full amount you invest. Smaller company shares are also likely to fall and rise in value more than shares in larger, more established companies listed on the main market of the London Stock Exchange. They may also be harder to sell. For the FP Octopus UK Multi Cap

Income Fund, fees will be deducted from capital which will increase the amount of income available for distribution. However, this will erode capital and may hinder capital growth.

Chris McVey, Fund Manager

[1] AJ Bell Dividend Dashboard October 2018.

[2] Lipper December 2019.

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