Stock picker Neil Woodford isn’t the only equity income fund manager able to deliver rising income and growth, year after year. So why not look beyond the usual suspect and consider these two top equity income funds for your tax-free stocks and shares Isa allowance instead.
Building wealth
Unit trust FidelityMoneybuilder Dividend invests primarily in UK companies, reducing risk with a bias towards larger, lower-risk companies. Fund manager Michael Clark, who has been at the helm since 2008, also has the freedom to invest outside of the UK, with around 10% of the fund in countries like Switzerland, France and Germany.
That said, his top 10 holdings include a host of familiar names with GlaxoSmithKline, Imperial Brands, British American Tobacco, AstraZeneca and HSBC Holdings making up more than 20% of the portfolio. However, this fund is no benchmark hugger, as it has easily outpaced the FTSE 100 by growing 71% in the past five years, well ahead of 26% growth on the benchmark index. It also beats the UK Equity Income sector, where the average fund returned 66%, according to Trustnet.com.
Income machine
Clark has done this by focusing on safer income sectors such as consumer goods, pharmaceuticals, regulated utilities, telecoms and tobacco companies. He also has large exposure to household goods giant Unilever and Reckitt Benckiser Group, giving further downside protection. He has done well by shunning the banks, and is underweight as far as oil giants BP and Royal Dutch Shell, whose performance has been volatile lately, are concerned.
FidelityMoneybuilder Dividend has slightly underperformed the FTSE 100 over the last year, returning 15% against 20% on the index, partly because he has missed out on the mining stock revival, which now looks played-out to me. It currently yields income of 4.18%, with a relatively low management fee of 0.5% a year. One to buy, hold and forget, while you keep re-investing those dividends.
Beagles about
JO Hambro UK Equity Income has not one manager but two, James Lowen and Clive Beagles, who have returned a total of 81% over five years, easily beating both the FTSE 100 and the wider equity income sector. The fund invests solely in UK equities, but has a greater spread of medium-sized and smaller caps than the Fidelity vehicle.
Inevitably, the fund’s biggest holdings are in familiar FTSE 100 names, but in this case with large exposure to oil giants Royal Dutch Shell and BP, which make up 15% of the fund, and a similar weighting in the big banks HSBC, Lloyds and Barclays. In fact there is precious little crossover with Fidelity, with other top holdings including Rio Tinto and Aviva, so they could balance each other nicely.
Lowen and Beagles look for stocks paying above average yield, will sell if the yield disappoints, and focus on shares they consider to be undervalued by the wider market. Currently, JO Hambro UK Equity Income yields a generous 4.29%, although with a slightly higher annual management fee of 0.75%. Why put up with near-zero interest rates on a cash Isa when you can get a juicy return like this?
