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Performance is cluster buster for UK equity income sector

Jupiter Asset Management chief executive Edward Bonham Carter has rejected concerns over clustering in the UK equity income sector.

He says as long as there is a difference in fund manager performance, as there always is, there is no reason for investors to be worried about duplication of holdings.

Bonham Carter says: “There is a tendency to cluster as fund managers do lean towards certain companies but there are still differences between those managers which is borne out in performance.

“If all the income funds were performing in a similar way, then, of course, there would be a concern of clustering but that is clearly not the case.”

Unicorn UK income is the top performer in the Investment Management Association’s UK equity income sector over the past 12 months, returning 53.7 per cent, while the worst performer is the Canlife high-income fund, which is up by 13.1 per cent at December 7.

Last month, S&P Fund Services warned of an overlap among the top 10 holdings in the sector. The rating agency found that 22 of the 23 funds it rates in the UK equity income sector now have Vodafone among its top 10 holdings while GlaxoSmithKline and Royal Dutch Shell appear in 87 per cent and 78 per cent of those funds respectively.

The rating agency also highlighted the fact that the loss of banks as a sector providing investor dividends means that over 66 per cent of the UK market dividend is provided by 15 companies.

Hargreaves Lansdown investment manager Ben Yearsley says: “There is a potential concern in that the number of firm’s offering dividends which can beat the market consistently have shrunk. You can obviously have different weightings to those companies and the important thing to remember is that this is a short-term phenomenon.”

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