Equity income funds are popular with UK investors and it’s easy to see why. With these products, investors can potentially generate both capital gains and income.
Here, I’m going to highlight two of my favourite equity income funds. Both of these products have magnificent track records and look capable of providing attractive returns for investors going forward.
Evenlode Income
First up is Evenlode Income, which is managed by boutique Oxfordshire-based investment manager Evenlode. Popular on investment platforms like Hargreaves Lansdown, the fund currently has over £3bn in assets under management.
What I like about this fund is that the portfolio managers take an old-school, Warren Buffett-type approach to investing. Ultimately, they see themselves as business owners, and they pick stocks carefully with the aim of holding on to them for the long term.
I also like the fact that while it’s a UK-focused fund, there are a few international holdings in it (like Microsoft). This has helped to boost performance.
The long-term track record here has been really solid. Since its launch in 2009, the fund has returned about 290% – around twice the return from the FTSE All-Share index (its benchmark).
Of course, there’s no guarantee that it will continue to outperform like this.
One issue to be aware of is that the top holdings have large weightings. At the end of September, for example, five holdings — RELX, Unilever, Diageo, Reckitt, and Bunzl — made up 36% of the portfolio. So, there’s some concentration risk here.
I think it’s a solid choice for a diversified portfolio though.
Fees are 0.87% per year through Hargreaves Lansdown.
Baillie Gifford Global Income Growth
The second fund I want to highlight is Baillie Gifford Global Income Growth, which as its name suggests, is a global equity income product. It’s managed by Scottish investment firm Baillie Gifford (which also manages the popular Scottish Mortgage Investment Trust).
What I like about this fund is that it aims to provide investors with a higher yield than the MSCI ACWI index offers (over rolling five-year periods), while also delivering long-term capital growth.
I also like the holdings. At the end of September, the top 10 holdings included Novo Nordisk, Microsoft, PepsiCo, Apple, and Procter & Gamble. These are all world-class companies.
Long-term performance here has been good. Over the last five years (to 19 October), the fund has returned about 66%. Meanwhile, for the five years to the end of September, it beat its benchmark by about 1% per year.
It’s worth pointing out that the yield isn’t particularly high here at present. Currently, it’s around 2.3%.
However, I’m willing to look past this, given the strong overall returns generated in the past.
Annual fees on Hargreaves Lansdown are low at just 0.55%, making it one of the cheaper equity income funds available.
| 1-year return | 5-year return | Yield | Annual Fees (Hargreaves Lansdown) | |
| Evenlode Income | 7% | 34% | 2.8% | 0.87% |
| Baillie Gifford Global Income Growth | 9% | 66% | 2.3% | 0.55% |
