Aviva Investors UK Listed Equity Income – focused on cash generation

Joseph Hill | Fri 17 January 2020

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• Chris Murphy and James Balfour focus on companies that generate lots of cash
• The fund has a bias to more economically sensitive sectors, such as financials
• Chris Murphy has plenty of experience of income investing

Our view

Chris Murphy and James Balfour, managers of Aviva Investors UK Listed Equity Income, focus on finding high-quality, cash-generative businesses. They think these businesses have the best chance of growing their dividends, which are paid to investors, and their share prices over the longer term. They're often leaders in their industry and use their established position in the market to support their growth. We like this simple, no-nonsense approach to investing.

Chris Murphy has plenty of experience under his belt. He's managed UK funds since 1998 and took over this fund in 2009. Since 2016, he’s been joined by co-manager James Balfour. They invest in a relatively small number of businesses, including smaller companies, which we think could aid performance but both of these factors add risk.

Murphy has an excellent long-term track record and this fund features on the Wealth 50 list of our favourite funds. We think it’s a great option for an investment in the UK stock market.

How’s the fund invested?

The managers look for companies that could generate lots of cash now or in future. This might be because they are already growing strongly, or have experienced a setback but have the potential to successfully turn it around. Importantly, the managers only invest when they think a company's shares look good value and can be bought at a price that doesn't reflect their longer-term potential.

The managers currently find the most opportunities in sectors that are more sensitive to the health of the UK economy. This includes financials and industrials, and together they account for a large part of the fund, at just over 46%. These sectors include a broad range of companies though. So within financials you can find businesses like wealth manager St James’ Place and the life insurer Phoenix Group. Within industrials the fund invests in businesses like manufacturer Melrose and Babcock International Group.

Sector allocation (%)

Source: Aviva Investors, 07/01/2020

Other big investments in the fund include consumer goods company Unilever and oil producers BP and Royal Dutch Shell.

How’s the fund performed?

The fund has performed better than its benchmark, the FTSE All-Share, over the long term. And over the past five years, it has beaten the market too delivering a return of 45.0%* compared with an index return of 43.8%.

Our analysis suggests investments in the financials and industrial sectors have been the biggest contributors to performance over this time. Please remember past performance isn't a guide to future returns.

Past performance is not a guide to the future. Source: *Lipper IM to 31/12/2019

Outlook

The uncertainty created by Brexit made the UK a less attractive investment destination for some investors over the last few years. But Murphy and Balfour think that increasing clarity on Brexit could lead to higher investment in the UK once again. A more stable environment is likely to be welcomed by many businesses, particularly those focused on the domestic market.

The managers are confident there could be good times ahead for the UK stock market. They think it's home to plenty of good, strong businesses that could generate high returns and strong cash flows into the future although of course there are no guarantees.

Please note the fund’s charges are taken from capital. This could boost the yield but reduce long-term growth potential.

Find out more about this Fund including charges

Key Investor Information