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Using equity income strategies when investing for income

Ryan Hughes, head of active portfolios at AJ Bell, highlights some of the funds which he feels are well positioned to deliver income for investors in current market conditions


Investing for income has been a popular investment strategy for advisers and UK investors for many years, whether it is for actually distributing the income or reinvesting it for long term growth. Over recent years, the way in which fund managers operate has evolved. They are now far more comfortable looking for yield in different areas, notably further down the market capitalisation spectrum. Smaller cap equity income plays have seen huge growth as investors look to diversify their income streams and no longer rely on investing in the large household names from the FTSE 100 index which have been seen as the traditional income payers.

The spectre of rising UK interest rates ahead means that there is a more challenging outlook for fixed interest markets going forward. My preferred route is to look to equity income strategies as they offer the scope to deliver an increasing income for investors over time, as well as the opportunity for capital growth, which may be particularly important should higher inflation take hold.

Which funds look attractive?

When looking at specific funds, I would highlight a number of strategies:

  • For a traditional UK equity income strategy, the Threadneedle UK Equity Income fund is on my list. It is managed by Richard Cowell who is a very experienced investor and is backed by a strong team. The fund is typically focused towards larger companies and looks to deliver an above average yield making it interesting for those seeking a higher level of income.
  • Smaller cap income is also an attractive area. Here, I’d select the Montanaro UK Income fund. This fund will be unknown to many reading this but is supported by one of the largest independent small cap research teams in the market. A focus on quality companies that are well managed and cash generative, makes it a good choice to diversify from traditional equity income funds.
  • Away from the UK, the Artemis Global Income fund offers something of interest for advisers and investors looking further afield. Manager Jacob de Tusch Lec is pragmatic in his approach and happy to adjust the portfolio away from the benchmark. While it can be a little more volatile, it focuses on investing in companies that have the generation of dividends at the heart of their corporate strategy. It also has the flexibility to invest in parts of the market that other income strategies may ignore.
  • My final choice would be the Jupiter Asian Income fund managed by Jason Pidcock. Asian companies have hugely developed their dividend culture making it one of the higher yielding regions around the world. Jason focuses on investing in higher yielding companies that have a commitment to share profits through dividends while also paying close attention to the macro and political environment in order to manage risk. With a yield of over 4%, this fund is attractive to those seeking higher level of income who can accept there may be some capital volatility.

In summary

Overall, advisers are faced with a huge number of different options from investing right across the globe, when looking to help income seekers to generate income from investments. In my view, the key to making effective choices is to try to identify those funds which are capable of delivering a sustainable income alongside the opportunity for this income to grow in real terms, which may prove to be very valuable if the economic environment becomes more challenging.


Ryan Hughes
Head of Active Portfolios AJ Bell Investments

Ryan has over 15 years’ investment experience. Prior to joining AJ Bell he was a fund manager and discretionary portfolio manager at a leading global investment management firm. Before that he spent eight years as a Senior Fund Manager at one of the UK’s largest investment groups, sitting as a member of their investment committee and global asset allocation committee.

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