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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.
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.