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Sarasin rises to income challenge

Sarasin Chiswell has brought out an Oeic that aims for a rising income and capital growth by investing in a concentrated portfolio of 25 equally weighted stocks.

The Sarasin UK Equity Income Fund has an initial target yield of 4 per cent and will be managed by Graham Ashby, who will be supported by Kevin Bennett.
They will select stocks using Sarasin’s thematic process to identify companies that will benefit from global pricing power, efficiency and automation, intellectual property and innovation, global convergence and corporate restructuring. These themes are identified following macro analysis and allow stocks to be chosen irrespective of traditional sector and style classifications.

An equal weighting approach was felt to reinforce the manager’s determination to buy stocks at a lower price then sell at a higher price. Each stock will be analysed to determine the sustainability of the dividend and prospects for dividend growth. Ashby will only choose stocks that can contribute something to the portfolio, rather than slavishly following a benchmark index.

Sarasin points out that the definition of a UK equity income fund is commonly based on achieving 10 per cent above the FTSE All Share Index, but IMA figures from MArch 2006 indicate that some managers have been struggling to achieve this. Sarasin says the difficulty is that small and mid-sized stocks have significantly outperformed in recent years, so average yields are lower.

According to Sarasin there is less choice available to equity income managers, so it believes a more selective approach to stockpicking, combined with a focused portfolio, will achieve better results.

Although UK equity income is a crowded sector, this fund takes a slightly different approach. A concentrated portfolio addresses the problem of returns being diluted by too many average stocks, but means poor performance of individual stocks will have a greater impact on the portfolio.

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