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Swip searches for Euro income

Scottish Widows Investment Partnership has established the Swip European income fund to take advantage of the attractive dividends being paid by companies in Europe.

The fund aims to produce a higher yield than the FTSE Europe ex-UK index and will target a yield of 3.5-4.5 per cent a year.

Swip says this compares favourably with the yield on many UK income funds that typically target 110 per cent of yield on the FTSE All-Share.

The Fund will comprise 30-50 stocks selected through bottom-up research that focuses on fundamentals. The new fund will use the same research process as Swip’s existing European funds to identify attractive stocks but the main difference will be in portfolio construction.

Investment directors Catie Wearmouth and Steven Maxwell will look for stocks that will provide a sustainable yield above that of the index, while also delivering an attractive capital return. Although the fund is benchmarked against the FTSE Europe ex-UK for performance purposes, the portfolio will be unconstrained in terms of stock, sector or country allocations. This enables Wearmouth and Maxwell to take bigger positions in stocks that they have the most confidence in.

Although yield is important, the fund will not hold stocks purely on the basis of their current or historic yield. Wearmouth and Maxwell will search for companies that are likely to increase future dividends and that will offer clients a high and sustainable yield, as well as capital growth, over the long term.

Two stocks they currently favour are German utilities group RWE and Greek lottery operator OPAP. These are viewed as well managed companies that offer attractive income, with current yields at 4.2 per cent and 7.5 per cent respectively. Swip also believes they have solid growth potential.

This fund may be useful to diversify income portfolios that are too dependent on the UK and if its aims for a growing yield and capital growth are achieved, the fund may provide some protection from inflation.

However, the Resolution Argonaut boutique, Newton and Jupiter already occupy this market and some advisers may feel Swip is adding nothing new.

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