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Oliver’s twist

Oliver Russ, manager of the Resolution Argonaut European income fund, was the first fund manager to recognise the huge opportunities in this sector.

The fund was launched less than 18 months ago and over the year to March 1, 2007 is already fifth out of 87 European trusts, having risen by 14 per cent against the sector average of only 7 per cent.

Even more important, however, is the yield. This trust has distributed an income of 4.74 per cent in the year to March 1, 2007 against yields on the other leading European trusts of between nil and 0.6 per cent. The current yield is 4.2 per cent.

The problem for the best UK equity income funds is that nearly all of them are very big and there are only around 120 eligible stocks in the UK whereas there are around 360 such stocks in Europe and there is far less competition for high-yielding stocks.

Russ believes the relative youth of the European equity income market closely resembles the UK market of a decade or so ago. He feels that European income shares will be a mainstream asset class in five to 10 years but, as ever, the early investors will see the best returns.

The fund generally holds around 30 to 50 stocks. These include value stocks which have a high dividend yield yet have scope for appreciation as well, growth stocks which have a high earnings’ growth rate but no need to retain capital and hence rapidly grow payouts to shareholders and also special situations where dividends might currently be low but have significant scope to increase as a result of restructuring or other corporate action.

I believe this fund should be a real winner and outperform the whole of the UK market as well as low-yielding European shares. This fund is a must for all income portfolios.

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