A UK fund focused on high quality dividends

Most of the recent headline news has focused on the general election, but when it comes to the stock market, it is normally the health of the economy and level of interest rates that drives the returns. The latest data suggests that it is only a matter of time before the Bank of England announces its first cut, which might tempt investors to look for more sustainable sources of income.

A good example is the FTF Martin Currie UK Equity Income Fund that offers a core exposure to high quality, dividend paying companies. It aims to generate an income that is higher than that of the FTSE All-Share Index, together with investment growth over a 3 to 5 year period after all fees and costs are deducted.

A member of the Select 50

The management team is fixated on valuations and has created a concentrated portfolio made up of what they believe to be the highest quality dividend payers in the UK. It is a common sense approach to investing that has helped to earn it a place in Fidelity’s Select 50 list of handpicked funds.

Managers Ben Russon, Will Bradwell and Jo Rands only look at companies that pay dividends and avoid those with insufficient free cash flow to drive dividend growth. About a third of the portfolio is invested in stocks with a high and sustainable yield, with the fund divided between dividend yielders and dividend growers.

Portfolio and outlook

At the end of May the £911m fund held just 49 different stocks with the 10 largest positions accounting for around 38% of the assets. These included well-known names such as Shell, BP, Unilever, AstraZeneca and Rio Tinto.

FTF Martin Currie UK Equity Income Fund - top 10 holdings

1. Shell
2. Unilever
3. BP
4. AstraZeneca
5. British American Tobacco
6. Rio Tinto
7. GSK
8. RELX
9. National Grid
10. BAE Systems

Source: Fidelity International, 31.5.24

The managers invest across the full range of market valuations, although the majority of the stocks are in the mid or large-cap brackets. Their biggest sector allocations are Consumer Staples, Financials and Industrials.

In the latest monthly update they said that the data demonstrates an improving backdrop in the UK, which backs their view that the underlying economic strength has been underappreciated by the wider marketplace. “Valuations remain attractive in the UK market, even following the recent strong performance.”

Performance

Since inception in April 1988 the fund has generated an average annual return of 8.46%, which was marginally ahead of the 8.36% from the FTSE All-Share benchmark. Over the same period the equivalent figure for its peer group was 7.59%. Please remember past performance is not a reliable indicator of future returns.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This fund invests in a relatively small number of companies and so may carry more risk than funds that are more diversified. This fund uses financial derivative instruments for investment purposes, which may expose the fund to a higher degree of risk and can cause investments to experience larger than average price fluctuations. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.