UK Equity Income Fund

Invests predominantly in UK companies which demonstrate an ability to

maintain and grow dividends and currently offer significant potential for both

long-term capital appreciation and sustainable income.

as at 31 December 2011

Key points

  • The fund seeks an absolute return by investing in predominantly UK companies which demonstrate an ability to maintain and grow dividends and currently offer significant potential for both long-term capital appreciation and sustainable income
  • Investment management responsibility for the fund is with Loudwater Investment Partners Limited since 1 December 2009
  • Sector: IMA UK All Companies

Current views

The accumulation units of the fund returned 4.2% in the month vs. a 1.25% rise in the FTSE 100 TR.

For the calendar year, the fund returned 0.47% whilst the FTSE 100 TR lost -2.18%.

The significant relative outperformance of the fund in December was due to a technicality over valuation timings which we wrote about in last month’s report when there was an inverse effect and the fund seemingly underperformed. We do not usually comment on valuation timings of the fund vs the FTSE as it usually, of course, evens out over time which is why we have presented the year end statistic, too.

December marked the end of a tumultuous and volatile year in markets when the FTSE 100 moved daily by 1% (in either direction) over a hundred times. We mark our year end at the end of February when we shall write a fuller report for investors, but for the time being let us re-iterate our belief that this fund, with its emphases on low transaction costs and dividend yield has been — and will continue to be — suited to the current market environment.

December was a relatively quiet month, both in terms of news over the macro environment (specifically the Eurozone) and on a portfolio basis with very few of our companies reporting results. One notable exception was the final results for Brewin Dolphin which met expectations comfortably. We have held Brewin Dolphin almost since inception as part of a strategy to own asset management stocks that pay a healthy dividend, have exposure to any rise in the savings ratio and which tend to be correlated to the stock market — i.e. if the market rises, the logic goes that the assets under management and fees for Brewin Dolphin goes up too so that the company is effectively a warrant on the stock market — and one that pays a 5% yield in the meantime. Whilst we sold many of our asset management stocks Brewins never quite reached our target price, dropped back but now looks like it is being re-rated according to our expectations. We like the company.

We did not make any stock changes to the portfolio in December

Our best performing stocks were Brewin Dolphin and Pearson.

Our worst performing stocks were Inmarsat, and Barclays.

Allocation by industry sector (exp as % of fund)

Financials 17.80
Oil and gas 13.52
Utilities 10.20
Mining 9.98
Pharma and biotechnology 9.96
Mobile telecommunications 8.83
Food producers 5.92
Food and drug retailers 3.77
Other 19.37
Cash 0.65

Top ten holdings (exp as % of fund)

Royal Dutch Shell 8.73
Vodafone 7.40
GlaxoSmithKline 5.76
HSBC 5.42
BHP Billiton 5.22
British American Tobacco 4.86
BP 4.79
Rio Tinto 4.75
Astrazeneca 4.20
Tesco 3.77

Financial information

Nav Class A Acc 124.34p
Nav Class A Inc 118.65p
Total net assets £16.5m

Performance vs FTSE 100 TR

Five-year performance

Since
1-year 3-year 5-year 1 Mar 2010*
Fund 0.41 n/a n/a 16.22%
FTSE 100 TR -2.18% n/a n/a 10.70%
Sector -7.10% n/a n/a n/a
Sector rank 13/282 n/a n/a n/a
Quartile 1 n/a n/a n/a
* As at the fund being fully invested post change of Investment Manager
** Joined IMA UK All Companies sector on 1 April 2010

Fund facts

ISIN Class A Acc GB00B1GW7B6
ISIN Class A Inc GB00B5833P17
Distribution Quarterly
28 February, 31 May, 31 August, 30 November
Dealing/valuation frequency Daily
Accounting year-end 30 September
Settlement T+4
EU Savings Directive In scope
Currency GBP
Annual charge Class A 1.50%
Minimum initial Class A £1,000
Initial charge 5.00%
ISA wrapper Yes
ISA transfer Yes
Savings plan Yes
Sector Pending
Depositary
BNY Mellon Trust & Depositary (UK) Limited
Registrar
Capita Financial Administrators