Fund managers aiming to provide income from equity investors see potential in UK corporations despite a focus on UK listed companies deriving their earnings overseas.
A review of the UK equity income sector by credit rating agency Standard & Poor’s showed economic growth fears in the UK meant fund managers were having to ‘search harder for earnings/dividend growth.’
Fund analyst Peter Brunt said: “While increasing numbers of managers have shifted their focus to companies that derive significant earnings from outside the UK, there are those that feel opportunities still exist among more domestically focused companies.”
Brunt pointed to managers who ‘believe the market is starting to reward strong fundamentals’, such as Graham Ashby who manages Liverpool Victoria Asset Management’s UK Equity Income fund.
Brunt said Ashby constructed his portfolio from the bottom up and believed that the future for UK corporations is generally positive helped by the strongest balance sheets in 10 years.
James Lowen at JO Hambro Capital Management (JOHCM) was reported in the review as feeling positive on UK based growth, with companies seen by his team predicting sales growth over the next 12 months and a better than situation for employment than suggested in the media.
Other managers are more skeptical about the prospects for UK-centric firms, with Ciaran Mallon at the Invesco Perpetual Income & Growth fund favouring stocks with emerging market exposure, like the bank HSBC. Despite this, Mallon has recently brought shares in a number of firms focused on the domestic market, including Morrisons and Northumbrian Water.
Standard & Poor’s rate 22 funds in this sector, made up of 17 UK equity income funds and five UK equity & bond funds.
© Fair Investment Company Ltd