Fidelity Moneybuilder Dividend could be a good solution to your income woes and can help you consolidate your UK equity holdings. By investing in companies with a proven ability to sustain dividend growth over the long term, even during difficult economic conditions, it has achieved continued success over recent years.
- Steady income
- Protects against inflation
- Defensive stock
- Reasonable fees
- So-so five-year performance
The prospect of 'safe income' at a reasonable price from blue-chips might not get seasoned investors with high- risk appetites jumping up and down with excitement. However, it serves as a good option for investors who are just starting out or more cautious investors who are looking to generate income.
The hunt for income is just about as frustrating as it can get right now. As investors grow weary of searching, the Bank of England base rate is showing no signs of perking up from its three-year record low.
The yield from this fund of 4.93 per cent places you streets ahead of most savings rates, while also beating CPI inflation at 2.9 per cent and RPI inflation at 3.2 per cent. It's attractive - although not the biggest yield among UK equity income funds. But not every fund boasting a high yield also has such strong capital gains - and this makes for a sturdy combination.
The fund's manager, Michael Clark, has been digging out cash-generative stocks since he took over the fund in 2008, and has since achieved significant outperformance against the FTSE All-Share. Arguably, this is down to the heavy blue-chip nature of the fund - which bucks the multi-cap trend rival managers tend to conform to. And Mr Clark's preference for pharmaceutical, telecom, tobacco and utility stocks have served him well, in particular.
| IC TIP RATING | |
|---|---|
| Tip style: | INCOME |
| Risk rating: | MEDIUM |
| Timescale: | LONG TERM |
These stocks are vital ingredients to the fund. Benefiting enormously from emerging market growth, they also have well-controlled capital spending, strong balance sheets and a proven record of returning capital to shareholders. GlaxoSmithKline, Imperial Tobacco and BT Group are the star performers and are among the most prominent holdings.
Because these consumer staples are relatively immune to a downturn in the economic cycle, Mr Clark says he worries far less about dividend cuts, although back in 2008 he wasn't always so cool-headed about the issue.
Avoiding dividend cuts is key to his stock-selection process. "Companies don't tend to cut by 5 per cent, they will usually cut by significantly more than this, resulting in significant share price falls and a disruption of income flows to investors in the fund," he says. In 2010, Mr Clark slashed his position in BP (fortunately ahead of the Macondo crisis) and, more recently, cut exposure to Royal Dutch Shell.
Investing in these 'big beast' companies is being heralded a smart move by analysts. This is largely because they make such robust and liquid stocks, but also because returns are peaking amid the volatility - beating benchmarks by up to 10 per cent.
Equities might have had a good run over the summer, but now is the time to play it safe, according to Jason Hollands, managing director of business development and communications at Bestinvest. "The autumn could bring risk in the form of regulation, but investing in this fund should protect you from nasty surprises."
This fund is a strong performer over one- and three-year periods. It has delivered a total return of 16.4 per cent (compared with the FTSE All-Share at 10.2 per cent) over one year and 43.5 per cent (FTSE All-Share 30.7 per cent) over three years. The return over five years is a little more shaky at 11.2 per cent, but it still comfortably pips the FTSE All-Share, which has returned a comparatively measly 9.5 per cent. The total expense ratio is below average for an actively managed fund at 1.22 per cent.
If you already hold UK blue-chips, you may have to watch any overlap in your portfolio. However, if you're searching for decent income sources or want safe, steady returns and good value for money, this income fund is a strong investment candidate. Buy.
FIDELITY MONEYBUILDER DIVIDEND (GB0003860904) | |||
|---|---|---|---|
| PRICE | 210.6p | MEAN RETURN | 12.54% |
| IMA SECTOR | UK equity income | SHARPE RATIO | 1.25 |
| FUND TYPE | Open-ended investment company | 1-YEAR PERFORMANCE | 15.96 |
| FUND SIZE | £455.42m | 3-YEAR PERFORMANCE | 43.23 |
| No OF HOLDINGS | 55 | 5-YEAR PERFORMANCE | 10.60 |
| SET UP DATE | 10 Nov 1980 | TOTAL EXPENSE RATIO | 1.22% |
| MANAGER START DATE | 1 Jul 2008 | YIELD | 4.93% |
| TURNOVER | To come | MINIMUM INVESTMENT | £1,000 |
| STANDARD DEVIATION | 9.57% | MORE DETAILS | www.fidelity.co.uk |
Source: Morningstar. Performance data as at 7 September 2012
Top 10 holdings as at 31 July 2012
| GLAXOSMITHKLINE | 8.3% |
| ASTRAZENECA (UK) | 7.2% |
| BRITISH AMERICAN TOBACCO | 5.2% |
| IMPERIAL TOBACCO GROUP | 5.0% |
| RECKITT BENCKISER GROUP | 4.2% |
| BT GROUP | 3.9% |
| ALTRIA GROUP | 3.7% |
| PENNON GROUP | 3.7% |
| VODAFONE GROUP | 3.4% |
| SSE | 3.3% |
Sector breakdown
| Consumer goods | 23.9% |
| Healthcare | 19.1% |
| Utilities | 16.1% |
| Financials | 11.8% |
| Telecommunications | 9.0% |
| Industrials | 8.7% |
| Consumer Services | 5.9% |
| Oil & gas | 3.2% |
| Other | 0.4% |
| Cash | 1.9% |
