Our top-rated UK equity income funds

UK equity income funds are popular with income seekers and those who want to grow their money by reinvesting dividends. In this article we look at a selection of our top-rated funds from this sector – could any of them find a place in your portfolio?

One of the highest yielding stock markets in the world

The UK market offers one of the highest yields in the world and with companies such as Royal Dutch Shell, HSBC and GlaxoSmithKline paying out much of that yield, UK equity income funds give you exposure to some world-leading businesses.

UK market valuations have become more attractive recently and there is significant scope for a share price increase if investor sentiment improves, but the market currently offers a yield of 4.3% even if it doesn’t. This appears to be very attractive both in absolute terms and compared to other regional equity markets and to bonds.

Please read the Important Information below as well as the text at the bottom of the page and make sure you understand the risks before investing.

Threadneedle UK Equity Income 

This fund is run by the experienced and capable Richard Colwell with the support of a well-resourced team. The approach to selecting portfolio companies focuses on identifying key themes driving the market at any time, for example restructuring or recovery opportunities, and then selecting stocks that should benefit from these themes.

Colwell is generally cautious at the moment and has built his portfolio around an ‘engine room’ of solid businesses offering resilient dividends. He supplements this with selected recovery names – poorly performing businesses such as Morrisons that might be riskier but offer greater potential returns.

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TB Evenlode Income 

Manager Hugh Yarrow’s high-conviction approach to investing mainly focuses on quality stocks that provide a sustainable and growing dividend with a valuation overlay. Despite the quality bias, the portfolio will typically have some exposure to more cyclical areas of the market. Yarrow’s style has historically translated into a significant exposure to consumer goods, technology and industrials, while carrying less weight in the financials, mining and oil & gas sectors.

The fund has demonstrated strong downside protection over its history and has also been less volatile than the market and the peer group. You should note that the fund has a yield broadly in line with the market as Yarrow runs it with a total return mindset. Consequently it sits in the UK All Companies sector rather than the UK Equity Income sector.

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Trojan Income 

This UK equity income option invests predominantly in larger UK stocks and selected overseas businesses. The fund follows the Troy house approach of focusing on capital preservation, so manager Francis Brooke favours quality, defensive companies and may also make use of cash if he believes the market to be overvalued.

This approach is reflected in its performance – during the turbulent markets of recent years it has been one of the least volatile funds in the sector, but also one of the top performers. While the income from the fund may have historically been lower relative to the UK income peer group, Brooke places a lot of emphasis on growth in the income stream with the fund having delivered dividend growth in every year since launch.

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iShares Core FTSE 100 UCITS ETF 

This ETF offers a low-cost way to benefit from the UK stock market’s high yield. The fund aims to track the performance of the 100 biggest UK-based companies by holding their shares. Many of these companies have global footprints, including HSBC, BP and AstraZeneca. Because there is no fund manager actively picking and choosing investments, tracker funds like this one can charge a very low annual fee. However, this also means that the fund will never outperform the wider market and will follow any downturns without any tactical changes to potentially reduce losses.

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Can’t decide? Choose a Ready-made Portfolio

If you aren’t sure where to put your money or would rather not spend time picking investments, the easy option is to choose a Ready-made Portfolio. The portfolios are built and looked after by the investment team at Tilney, our sister company. The team spends their days deciding where and how much to invest, reviewing the portfolios and making any changes when they need to.

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Invest in these funds in our award-winning ISA

These UK equity income funds and all of our top-rated funds and Ready-made Portfolios can be invested in through our award-winning Stocks & Shares ISA. Opening an ISA on our website is quick and easy – just find your debit card and National Insurance number, and then fill out the application form. Please read the important information below as well as the text at the bottom of this page and make sure you understand the risks before investing.

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Important information

The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. Funds may carry different levels of risk depending on the industry sector(s) in which they invest. You should ensure that you understand the nature of any fund before you invest in it. ETFs can be high risk and complex and may not be suitable for retail investors, so you should make sure you understand all the risks involved before investing. 

This is not advice to invest. If you are in doubt as to the suitability of an investment please contact one of our advisers. Yields quoted are net. They are not guaranteed and can go down as well as up. Current or past yield figures provided should not be considered a reliable indicator of future performance.