Threadneedle UK Equity Income – Targeting dividend growth
Joseph Hill | Wed 22 January 2020
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- Richard Colwell is an experienced income investor in the UK stock market
- The fund has performed well over the long term and features on our Wealth 50 list of favourite funds
- The manager looks to invest in highly cash generative businesses
Our view
Threadneedle UK Equity Income has been managed by Richard Colwell since 2010 and he’s not afraid to invest in unloved and overlooked companies, building a strong long term track record along the way. The manager looks to invest in companies with high returns and strong cash generation, believing that it’s this that enables them to fund their own growth. He combines investing in these cash generative companies that pay out a relatively high level of income to shareholders with investing in some businesses undergoing a recovery. The companies might pay a lower income for now, but he believes they have the potential to grow both the income they pay and the value of the business in the future.
The manager also considers what’s going on in the wider economy and how this could affect company performance. We like his sensible approach to investing and think the fund will perform well over the long run, although there aren’t any guarantees this will be the case. Colwell invests in a relatively small number of businesses, including smaller companies, and both of these factors add risk.
The fund has performed well over the long term and features on our Wealth 50 list of favourite funds. We think it’s a great choice for an investment in the UK stock market, and for portfolios focused on income.
How’s the fund invested?
The manager is currently positive on the Industrials and Consumer Services sectors and together they account for 48.4% of the fund’s total investments. Companies in the Industrials sector are typically involved in making or selling machinery, equipment or supplies used in manufacturing and construction. Electrocomponents and Rentokil Initial, for example, both feature in the fund’s top five holdings.
Colwell believes that Rentokil is well positioned for future growth, given its stable management team and the strong competitive advantage it possesses over its rivals. And there’s still plenty to aim for, with the company’s end market growing at around 6% per year, the size of the pie is increasing.
Other large investments include Phoenix Group, RSA insurance and Wm Morrison supermarkets. But the fund’s largest position, at a sizeable 9.3%, is the Pharmaceutical company AstraZeneca. Colwell thinks that the company has made progress on its development of new, higher margin products and expects it to be able to generate higher cash flow and dividend growth over the coming years.
How’s the fund performed?
The fund has performed strongly over the long term, delivering greater returns than the FTSE All-Share index. Our analysis suggests that the fund’s investments in the Industrials and Health Care sectors have been the biggest contributors to the fund’s performance over the long term.
But over the last five years, the fund has matched the return of the broader UK stock market, delivering a return of 43.8%* to investors, the same return an investment in the FTSE All-Share index would’ve provided. Please remember past performance isn’t a guide to the future.
The fund’s charges may be taken from capital. This could boost the yield but reduce long-term growth potential.
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| Dec 14 -
Dec 15 |
Dec 15 -
Dec 16 |
Dec 16 -
Dec 17 |
Dec 17 -
Dec 18 |
Dec 18 -
Dec 19 |
|
| Threadneedle UK Equity Income | 4.5% | 13.8% | 7.4% | -6.4% | 20.4% |
| FTSE All-Share | 1.0% | 16.8% | 13.1% | -9.5% | 19.2% |
Past performance is not a guide to the future. Source: *Lipper IM to 31/12/2019