Equity Income Funds

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  • JohnRo
    JohnRo Posts: 2,887 Forumite
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    coyrls wrote: »
    It doesn't seem bleeding obvious to me. Why would income funds have acc units if there wasn't a demand to use these funds to achieve growth?

    The same reason many growth funds have INC units, different folks, different strokes.

    The purpose of INC is to make generated income available to the investor by paying an income distribution, the purpose of ACC is to handle the income distribution internally and use it to provide internal compound growth.

    I don't think either, comparing like for like, is designed to provide a better total return than the other.
    'We don't need to be smarter than the rest; we need to be more disciplined than the rest.' - WB
  • MPN
    MPN Posts: 365 Forumite
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    coyrls wrote: »
    It doesn't seem bleeding obvious to me. Why would income funds have acc units if there wasn't a demand to use these funds to achieve growth?

    Yes, just like the OP I hold Artemis Global Income in ACC units. This is not to take income but to achieve growth and in my opinion that is what it is doing at this time.
  • bostonerimus
    bostonerimus Posts: 5,617 Forumite
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    I own broad stock index funds and plan to use them as income funds. They produce some dividends an capital growth. I take a total return approach to income so will take dividends and capital gains when I need them. I don't see the need for a specialized equity income fund.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • Linton
    Linton Posts: 17,121 Forumite
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    bostonerimus wrote: »
    I own broad stock index funds and plan to use them as income funds. They produce some dividends an capital growth. I take a total return approach to income so will take dividends and capital gains when I need them. I don't see the need for a specialized equity income fund.

    Yes, if you take a total return approach to investment income, which you have said elsewhere is relatively unimportant to you, then I cant see why you would want to invest in equity income funds other than perhaps as a proxy for defensive companies to reduce risk without as much impact on total return that bonds currently provide.

    In my case I take a multi source approach to income using total returns and directly held UK dividend paying shares with focussed equity and bond income funds to provide diversification at minimal effort as a steady secure investment income increasing broadly with inflation is important to my retirement. Global index funds are highly weighted towards the US where dividends are relatively low. On the other hand SE Asia which has a much smaller allocation produces fairly high dividends and so SE Asian Income funds are very useful. Europe also can provide useful dividends.
  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
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    I think the problem with taking the Acc version of an equity income fund is that (obviously) you still have what is an equity income fund, and unless its a specialist one, its going to be almost entirely UK biased and also biased towards certain types of companies.

    Nothing wrong with that if thats part of your portfolio as a plan, but i think there's an argument for widening equity income to be across the world, and even then you are missing out on many companies who dont produce as many dividends because, for example they might do share buy backs instead.

    So perhaps look at equity income Investment Trusts where they are freer to get their income from a variety of sources that they have decided are viable, not restricted just to companies that produce higher dividends. Or just look at funds that dont focus on income.
  • bigadaj
    bigadaj Posts: 11,531 Forumite
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    AnotherJoe wrote: »
    I think the problem with taking the Acc version of an equity income fund is that (obviously) you still have what is an equity income fund, and unless its a specialist one, its going to be almost entirely UK biased and also biased towards certain types of companies.

    Nothing wrong with that if thats part of your portfolio as a plan, but i think there's an argument for widening equity income to be across the world, and even then you are missing out on many companies who dont produce as many dividends because, for example they might do share buy backs instead.

    So perhaps look at equity income Investment Trusts where they are freer to get their income from a variety of sources that they have decided are viable, not restricted just to companies that produce higher dividends. Or just look at funds that dont focus on income.

    I dont think you've thought through the above really.

    There are a wide range of global equity income funds, with their own ima sector, also Asian income and even South American income.

    None of the above will have a uk bias by definition, if you choose a uk equity income fund then I'd expect to to be very uk focused.

    There's continuing debate about whether value, growth or income are better, and the answer is it depends on people's needs, where we are in the economic cycle, the specific companies and their outlook and that if the wider economy etc etc

    Investment trusts aren't necessarily any better. They are restricted to the same extent as open ended funds but unless you invest in a tracker then any active manager has the flexibility to invest in a range of shares, not necessarily those paying the highest dividends, indeed this is an area where active appears to have a definite advantage over passive. They can gear with increased returns though with added risk and given teh arguably slow and steady remit of income funds this may not be the best sector to do so.
  • MPN
    MPN Posts: 365 Forumite
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    So in theory, it would appear reasonable for some people to hold Equity Income Funds (whether UK or Global) alongside the more growth type funds already mentioned in these regions. This is when they don't require the income but use ACC units for more re-investment/growth purposes.

    Also, with Equity Income Funds they have the additional security of investing in a more defensive and slightly less volatile fund to the growth fund option even though both are still invested in 100% equities.
  • Linton
    Linton Posts: 17,121 Forumite
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    MPN wrote: »
    So in theory, it would appear reasonable for some people to hold Equity Income Funds (whether UK or Global) alongside the more growth type funds already mentioned in these regions. This is when they don't require the income but use ACC units for more re-investment/growth purposes.

    Also, with Equity Income Funds they have the additional security of investing in a more defensive and slightly less volatile fund to the growth fund option even though both are still invested in 100% equities.

    Yes, but the effects are not that large. Also you need to choose your funds carefully as the UK All Share sector in particular contains a wide variety of funds. You would need to identify a seriously growth oriented fund to justify holding both sectors.

    I dont think these considerations are of much relevence to a small investor who may well not hold one UK specific fund, let alone two. But once you are well into a 6 figure portfolio, perhaps.
  • StellaN
    StellaN Posts: 354 Forumite
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    If the OP holds Fundsmith then I personally can't see the point in holding a global equity income fund like Artemis especially if it's not for income purposes. The same applies to the UK sector if she holds Lindsell Train then why bother with a UK Equity Income fund like Woodford.
  • Linton
    Linton Posts: 17,121 Forumite
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    StellaN wrote: »
    If the OP holds Fundsmith then I personally can't see the point in holding a global equity income fund like Artemis especially if it's not for income purposes. The same applies to the UK sector if she holds Lindsell Train then why bother with a UK Equity Income fund like Woodford.

    The problem I find with funds like Lindsell Train , Fundsmith, and Woodford is that they are highly concentrated in a small number of holdings/sectors:

    The Fundsmith manager's report for 2016 states that it generally holds shares in 20-30 companies. About 80% of the holdings are in the USA and the UK with a small scattering of holdings in 5 other European countries. Its range of sectors is also highly concentrated 85% in IT, Consumer Staples and Healthcare.

    Lindsell Train UK Equity is very similar in that it holds shares in the region of 20-35 companies, again highly concentrated into favoured sectors. 80% in Beverages (!), Financial Services, Media, and Personal Goods(?). Woodford Equity Income is almost entirely UK and holds shares in many more mostly small companies but again is focussed on a small number of sectors - Finance and Healthcare comprises about 60% of the total.

    None of them are typical members of the sector into which they are allocated. Presumably you invest in such funds because you believe the celebrity managers have magic fingers that allow them to successfully construct such idiosyncratic sets of holdings. Perhaps your beliefs are justified, perhaps not. Either way what else do you hold? Just your 3 favoured funds and nothing else? Surely very risky and the antithesis of what is normally considered a balanced portolio. Or perhaps you hedge your bets and set up a more normal parallel portfolio.

    I dont know the answer, and therefore I dont hold the funds.
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