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Hargreaves launches monthly UK equity income fund

Hargreaves launches monthly UK equity income fund

by Danielle Levy, Gavin Lumsden Feb 15, 2017 at 16:33

Hargreaves Lansdown's new UK equity income fund will pay a monthly dividend as it seeks to attract investors hungry for a regular return on their savings.

The HL Select UK Income fund marks the online stockbroker’s second foray into direct equity fund management, following the launch of the HL Select UK Shares fund in December. That fund attracted £225 million from investors.

Also managed by Hargreaves' head of equity research Steve Clayton the new fund will launch on 2 March offering an estimated income yield of 3.9%, which will be paid monthly.

It will have an ongoing charge of 0.6%, while Hargreaves' Vantage annual platform fee of up to 0.45% will also apply.

Although quarterly dividends have become increasingly common among investment funds, within funds investing in equities monthly payouts are still rare, with Premier Monthly Income run by Citywire A-rated Chris White, the exception rather than the rule.

Most monthly income funds either invest in bonds, such as Invesco Perpetual Monthly Income Plus , run by Paul Causer and Paul Read; or Schroder Monthly Income , managed by Citywire AAA rated Michael Scott; or, invest in a mix of bonds and shares such as Jupiter Monthly Income  under Citywire A-rated Richard Curling.

Among investment trusts, there are no equity funds providing monthly income, leaving it to property funds, such as F&C Commercial Property (FCPT) and F&C UK Real Estate (FCRE); hedge funds such as BH Global (BHGG); or debt funds like TwentyFour Select Monthly Income (SMIF), Fair Oaks Income (FAIR) and SQN Asset Finance Income (SQN).

Clayton (pictured) will target companies with a history of paying dividends that are supported by free cash flow. He aims to back businesses with high margins, high returns on capital, recurring revenues and low levels of debt.

At launch the fund will have around 30 stocks, spread across 15 sectors. The manager intends to hold a mixture of higher yielding stocks and some lower yielding companies, where he sees the potential for future dividend growth.

‘Income investing isn’t just about the next dividend. It's about creating the combination of rising income, backed by capital gains that maximises wealth over the long-term,’ said Clayton.

‘A very high yield today can mean a lower total return in the long run because the company isn't reinvesting enough in future growth.’

With this in mind, the HL Select UK Income fund intends to back companies that are able to grow their dividends over time, as share prices normally appreciate over the long term to reflect this.

‘In this way, a rising income can also translate into long-term capital growth,’ Clayton added.

Hargreaves Lansdown claims that the ongoing charge of 0.6% is lower than 91.4% of the funds listed in the Investment Association’s UK Equity Income sector.

Accountancy software provider Sage Group (SGE) currently represents the largest position in the UK Select Shares fund, followed by British American Tobacco (BATS) and Reckitt Benckiser (RB).

Since launch in December 2016, the UK Select Shares fund is up 10% versus 8% by the average fund in the Investment Association's UK All Companies fund sector.

Clayton previously worked as a partner at Mirabaud Securities and as head of UK equities at LV= Asset Management. According to Citywire's records, he has managed only one fund for private investors, a UK equity fund, which he ran for less than a year for Allianz Global Investors in 2003-04.

The second shares fund at Hargreaves Lansdown marks a shift away from the multi-manager approach that had previously dominated at the firm, which is applied to the existing £7 billion fund range.

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Comments  (13)

  • Law Man: 

    Monthly paid income may attract the unsophisticated investor.

    The disadvantage is that you restrict your choice of assets significantly.

    Anyone running a SIPP or ISA to draw income should hold 1 year or so income in cash to protect against falls (or even a fall in dividend rates).

    Further, with a spread of ITs and funds, with varying half yearly pay out dates, you should have income coming in during most months.

    22:07 on 15 February 2017

  • William Phillips: 

    VT Munro Smart-Beta UK Fund is another open-ended fund that pays out monthly, but the capital performance since launch (based on mechanised stock selection) has not been great:


    12:44 on 16 February 2017

  • Stephen Corcoran: 

    I do not consider myself either sophisticated or otherwise when it comes to investment. I do find monthly dividend paying funds a useful tool covering the management fees of my other investments (specifically acumulation unit holdings) and so far it has worked for me. No real views on this particular launch other than I sense HL will be looking to top the charts. I have an investment interest in most of their funds and to date they have all performed well. Personally I am more bothered about duplication and so in this instance I will give it a pass but I am not negative on on their ambitions or monthly income retunrs. As ever, it depends when you 'bought in'

    16:26 on 16 February 2017

  • Stephen Corcoran: 

    Wanted to point out also that Querns Downing Monthly Income could sit well with Premier Monthly Income (direct share investment rather than a pool of other fund investment) proving there is never an exception, just smaller opportunities.

    16:30 on 16 February 2017

  • FrankFrank: 

    When it comes to launching funds HL are a class act. This one has low charges, monthly pay outs and is targeting the best companies paying reasonable dividends. Everything the small investor wants. It deserves to succeed and I am sure it will.

    12:29 on 19 February 2017

  • Stephen Tiley / PensionsManager: 

    But not if 25% of the income is charged as a fee surely? (0.45% plus 0.6%) / 3.9% = over 25% of income as a fee. Would it not be better to hold the shares directly (or most of them) directly on a platform that charges fixed fees (not based on percentages)?

    17:50 on 19 February 2017

  • Williamwonders: 

    I think that HL fees will be drawn from capital. I'm not sure if this is beneficial to the investor in the long term, but always seems les painful than losing c.25% of income payout.

    18:33 on 19 February 2017

  • Stephen Tiley / PensionsManager: 

    Yes well I hope they move in the right direction by a big enough margin! I note that Vanguard offer a high yield passive based on the FTSE350 higher yielding stocks which yields a similar amount. I also have a World higher dividend ETF which costs a lot less! Still if the long term performance is good then fine, just don't like paying quite so much if I can help it.

    18:45 on 19 February 2017

  • Law Man: 

    If you buy a new ETF in your HL ISA, and already hold £10,000 in ETFs, ITs, & shares, then there will be no platform charge on the new ETF. The 0.45% p.a. charge is capped at £45.

    For example, if you buy IUKD yielding 4.82% with a TER of 0.4%, your charges will take 0.4/ 4.82 = 8.3% of the income, leaving you with a net return of 4.42% p.a.

    19:52 on 19 February 2017

  • LouisV-W4: 

    Do HL Select UK Income and HL Select UK Shares hold the same stocks?

    11:32 on 20 February 2017

  • Powerful Pierre: 

    I presume we won't know till after the Income version is launched on March 2. Logically, they should be different.

    18:06 on 20 February 2017

  • LouisV-W4: 

    I don't know why they should be different. Surely, the objective is to achieve good and consistent dividends, and one pays out, and one is re-invested.

    18:12 on 20 February 2017

  • Franco: 

    Of course the the two HL funds will be different. One is paying no attention to income and the other is an income/ total return compromise. And fund+platform fees total of 1.05%, although ensuring princely profits, is low by industry standards.

    11:58 on 09 May 2017

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