The UK equity market is well known for its high dividend payouts, but these are generated by a small number of companies and sectors. And, according to broker AJ Bell, four of the top 10 yielding companies in the FTSE 100 are not expected to earn enough in the coming year to cover their forecast dividends, while the 25 companies yielding the most in the FTSE 100 have dividend cover of less than 1.5.
- Attractive yield
- Good manager track record
- Strong long-term performance
- Invests in companies of all sizes
- Short-term underperformance
A multi-cap income fund such as CF Miton UK Multi Cap Income (GB00B4M24M14) could help to mitigate the risk that FTSE 100 companies will not continue to deliver an attractive level of dividends. This fund invests across the market capitalisation spectrum, generating income from a range of companies. It has 16.8 per cent of its assets in the FTSE 250, 15.6 per cent in the FTSE Small Cap index and about a third in the Alternative Investment Market (Aim). FTSE 100 companies account for 17.7 per cent of its assets.
CF Miton UK Multi Cap Income aims to provide an attractive level of income with some capital growth over the long term, and has an attractive 4 per cent yield. Over five years it is the top-performing fund in the Investment Association (IA) UK Equity Income sector, and it is in the top quartile of this sector over three years.
The fund is managed by Gervais Williams and Martin Turner, who also run Diverse Income Trust (DIVI), but this investment trust has an ongoing charge of 1.18 per cent, compared with CF Miton UK Multi Cap Income's 0.81 per cent. Diverse Income Trust also often trades at a premium to net asset value, due to its attractive income profile.
The managers have a strong record of outperformance, with Mr Williams delivering a cumulative total return of 104.7 per cent over 10 years, compared with 60 per cent for a composite of his peer group, according to FE Trustnet. And Mr Turner has made 118.2 per cent compared with 86 per cent for his peer group over five years.
They run a diversified portfolio of between 120 and 160 holdings, without reference to a benchmark. Instead they select companies because of their potential to grow dividends in a sustainable way. Mr Williams and Mr Turner consider a number of other factors including whether a company's turnover is likely to rise, the financial flexibility in its balance sheet and whether its managers are making decisions that will build real intrinsic value.
The fund's top three holdings are infrastructure and support services business Stobart Group (STOB), greeting card and gift packaging firm IG Design Group (IGR) and Amino Technologies (AMO), which provides Internet protocol (IP) enabled television and cloud television services.
CF Miton UK Multi Cap Income is also a good option due to uncertainty over the strength of sterling. "We don't know whether sterling will appreciate or depreciate, or whether we'll get a good Brexit deal," says Sheridan Admans, investment research manager at The Share Centre. "So investors need to have a broad and balanced portfolio to steer through this time, and this fund offers a good mix. Large-caps, which derive about 70 per cent of their income from overseas, will benefit if sterling weakens; mid-caps have 50/50 per cent of their income from the UK and overseas; and small-caps, which are more weighted to the UK should do well in an appreciating environment."
Over one year CF Miton UK Multi Cap Income has underperformed the FTSE All-Share index and is one of the worst performing UK Equity Income sector funds. But Mr Admans says its long-term outperformance has been consistent, and it has also proved less volatile than other income funds due to its blend of sectors.
So if you are a long-term investor looking to diversify your income and mitigate the effects of currency fluctuation, CF Miton UK Multi Cap Income's attractive yield, good manager track record and strong long-term performance mean it still looks like a good way to do this. Buy. EA.
CF Miton UK Multi Cap Income (GB00B4M24M14) | |||
|---|---|---|---|
| Price | 201.8p | 3-yr mean return | 10.41% |
| IA sector | UK Equity Income | 3-yr Sharpe ratio | 1.19 |
| Fund type | Oeic | 3-yr standard deviation | 7.99% |
| Market cap | £873.7m | Yield | 4.02% |
| No of holdings | 148* | Ongoing charge | 0.81% |
| Set-up date | 14 October 2011 | More details | www.mitongroup.com |
| Manager start date | Gervais Williams: 14 October 2011, Martin Turner: 14 October 2011 | ||
Source: Morningstar as at 23/05/17, *Miton as at 30/04/17
Performance
| Fund/benchmark | 1-year total return (%) | 3-year cumulative total return (%) | 5-year cumulative total return (%) |
|---|---|---|---|
| CF Miton UK Multi Cap Inc | 15.9 | 37.5 | 144.5 |
| FTSE All-Share index | 25.7 | 25.7 | 78.9 |
| IA UK Equity Income sector average | 20.4 | 27.2 | 85.3 |
Source: Morningstar as at 23/05/17
Top 20 holdings as at 30/04/17 (%)
| Stobart Group | 2.0 |
| IG Design Group | 1.9 |
| Amino Technologies | 1.4 |
| Conviviality Retail | 1.4 |
| SafeCharge International | 1.4 |
| Accrol Group | 1.3 |
| Close Brothers Group | 1.3 |
| Park Group | 1.2 |
| Costain Group | 1.2 |
| Safestyle UK | 1.2 |
| Phoenix Group | 1.2 |
| A&J Mucklow Group | 1.2 |
| 888 Holdings | 1.2 |
| Aviva | 1.1 |
| Lloyds Banking Group | 1.1 |
| Hostelworld Group | 1.1 |
| Lok'n Store Group | 1.1 |
| Admiral Group | 1.1 |
| 4imprint Group | 1.1 |
| McColls Retail Group | 1.1 |
Source: Miton
Index weighting as at 30/04/17 (%)
| FTSE AIM | 34.3 |
| FTSE 100 | 17.7 |
| FTSE 250 | 16.8 |
| FTSE Small Cap | 15.6 |
| Other | 6.9 |
| FTSE Fledgling | 3.1 |
| Bonds | 1.0 |
| FTSE 100 Put Option | 0.4 |
| Cash | 4.2 |
Source: Miton
IC Tip rating
| Tip style | Income |
|---|---|
| Risk rating | High |
| Timescale | Long term |
