Type: Unit trust
Aim: To produce a higher than average yield, combined with long-term growth in income and capital. Investment is made generally in blue chip UK equities which, in the manager’s opinion, show above average management quality and prospects for growth
Minimum investment: Lump sum £1,000 and monthly £50
Investment split: 100% in UK blue chip companies
Benchmark: FTSE 350 index
Isa link: Yes
Charges: Initial 5.25%, annual management charge 1.5%
Commission: Initial 3% and renewal 0.5%
Tel: 0845 777 5511
AXA Framlington’s UK blue chip equity income fund aims for income and growth by investing in 50 to 70 UK blue chip companies. It will be managed by Jamie Forbes-Wilson, who joined Axa Framlington in 2003.
Hargreaves Lansdown senior analyst Meera Patel observes that there are not many blue chip income funds in the sector. She thinks this fund offers clients diversity away from the traditional equity income funds, many of which have a mid-cap bias.
“That said, the manager can invest up to 30 per cent in medium-sized companies in the FTSE 350 index. This gives the fund additional flexibility and greater prospects for capital growth, but it will predominantly focus on bigger companies,” she says.
Axa Framlington has told Patel that the fund will be benchmark aware. “This means that to generate its yield target, the fund may take positions in stocks simply because they are too big to ignore as part of the overall index. It will, however, be a fairly concentrated portfolio of 50 to 70 holdings,” she says.
In Patel’s view, clients who are specifically looking for a higher than average income may find this proposition attractive, as it aims to produce a yield that is 115 per cent in excess of the FTSE All Share yield.
“This fund could underperform in a bull market rally driven by small and medium-sized companies. However, as it has more defensive qualities by investing predominantly in bigger companies, I would expect it to be resilient in more volatile periods,” says Patel.
Discussing the potential drawbacks of the fund, Patel says: ”The IMA Equity Income sector is extremely competitive and Jamie Forbes-Wilson is a relatively unknown manager. He will need to prove his mettle if the fund is to gain popularity.”
Patel points out that Axa Framlington’s other income funds, managed by George Luckraft, have been poor. However, she adds that these funds have a smaller company bias and are prone to volatility in difficult markets. “This new fund will need to shine given that the manager is supported by the UK equity team including George Luckraft,” she says.
Many blue chip companies are at risk of cutting their dividends this year and Patel says this is not just confined to the banks, but across some other sectors. She feels Forbes-Wilson could struggle to achieve a yield that is 115 per cent in excess of the FTSE All Share index, at least in the short term. “This would be a shame, particularly as it has a lot to live up to in a competitive sector,” she says.
Identifying the main competition, Patel says: “The Rensburg UK equity income fund is the main competition, although Trojan income – which is predominantly orientated towards bigger companies = could also provide suitable competition.”
Suitability to market: Good
Investment strategy: Average
Adviser remuneration: Average