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Income at a lower cost via ETFs

Many UK equity income investment trusts trade at premiums but a number of low-cost income ETFs are coming to market. However, when seeking dividends an active manager might still have the edge
December 12, 2012

With many of the best UK equity income investment trusts trading at premiums to net asset value (NAV), investors wanting a reasonably priced alternative are struggling for options. However, a number of equity income-focused exchange traded funds (ETFs) have come to market providing further options, although at present the range is still limited. There are four UK funds investors could consider.

iShares FTSE UK Dividend Plus (IUKD) is one of the first of its kind available to UK investors, having launched in 2005, and tracks the FTSE UK Dividend+ Index. It uses physical replication so buys the shares in the index. The fund offers an attractive distribution yield of 5.05 per cent, boosted by stock lending, and a low charge of 0.4 per cent. Tracking has been reasonable with the fund returning 9.07 per cent since launch, in contrast to 10.48 per cent for its index.

It is also one of the larger equity income ETFs with more than £468m in assets, while others in this space have less than £100m.

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