Mark Dampier: Success of unloved ITV is no mystery to clever investors
Friday 05 April 2013
The current investment climate is very much against the saver. Financial repression is everywhere. Like me, many of you might have been disappointed recently to receive notice that your savings accounts' interest rates are falling further, to around 1.5 per cent gross.
I see no end to this given the state of the UK and European economies. I certainly don't see any chance of interest rates rising before the general election in 2015 and probably for some time after.
This presents a conundrum for savers. With inflation around 3 per cent cash is losing its real purchasing power. This might not be significant over a year, but over three or four years it will become highly noticeable.
I am not suggesting investors shouldn't keep some cash. Everyone needs money for a rainy day. However, the days of getting a real return on cash deposits have gone, at least for the foreseeable future. The problem is that to get a better return you need to take risk. This is exactly what the Government wants you to do - either invest in financial assets or spend money to boost the economy.
Providing enough cash is put aside for emergencies, one investment worthy of consideration is UK equity income. This is a subject I keep returning to, as in my view it is a type of investing that stands the test of time.
One UK income fund that is often overlooked is Threadneedle UK Equity Alpha Income. At £359m the fund is surprisingly small considering the records of Leigh Harrison and Richard Colwell, the fund's co-managers. They also run the £1.6bn Threadneedle UK Equity Income fund, but I prefer the Alpha fund, which tends to take a little more risk, placing greater conviction in a more concentrated portfolio of stocks.
Mr Harrison and Mr Colwell believe we remain in the midst of a prolonged recovery from the financial crisis. They expect sub-par economic growth to continue. As a result they are maintaining a balance between solid, reliable companies able to pay consistent dividends and those able to grow regardless of the prospects for the wider UK economy.
The duo are essentially looking for unloved companies which have been misunderstood by other investors. In the case of ITV, for example, many investors were concerned about falling advertising revenues, but Leigh Harrison and Richard Colwell believe the value of its content outweighs this. They also look for companies where change is having a positive effect. 3i, for example, was paying an attractive yield, but a restructuring following the appointment of a new CEO also helped to push the share price considerably higher.
Elsewhere, Mr Harrison and Mr Colwell have generally been avoiding banks and mining companies, which they do not view as quality businesses. Portfolio activity was limited in 2012 with only a few stocks purchased, including F&C, the asset manager; National Grid; 3i; and Close Brothers.
The size of the fund means that they are able to invest more in medium-sized companies. Presently, the fund has approximately 25 per cent invested in higher-yielding mid-sized companies. If I was going to be critical of the fund, though, I would suggest that it could be further differentiated from peers by investing more in this area. The likes of Neil Woodford at Invesco Perpetual, for example, simply can't get much exposure to medium-sized companies, even if he wanted to. I believe Mr Harrison and Mr Colwell should use the smaller size of this fund to greater effect.
That said, the fund had a good 2012, continuing to outperform in the second half of the year, where many funds with a greater bias towards larger companies with defensive characteristics faltered. The strong performance was achieved despite not owning any banks, which had a strong run over this period.
The portfolio currently yields 4.5 per cent, and those investing through an Isa or Sipp have no further tax to pay. Clearly dividends cannot be guaranteed, but as we have seen nor can high interest rates on cash deposits. Perhaps savers who have excess money in cash deposits and who are willing to take on some risk with their capital should consider a fund such as Threadneedle UK Equity Alpha Income. It at least has some chance of offering inflation-beating returns, and at present offers considerably higher income than cash deposits.
Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial advisor and stockbroker. For more details about the funds included in this column, visit www.hl.co.uk/independent
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Jo from Northern Ireland was less than impressed by Russell Brand's attempt to stage a publicity stunt
- 1 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
Shock poll shows voters believe Ukip is to the left of the Tories
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
New era of cheap oil 'will destroy green revolution'
Ukip founder Alan Sked and Nigel Farage 'begged Enoch Powell to stand as a candidate'
Ukip candidate jokes about 'shooting peasants' in racist and homophobic rant
iJobs Money & Business
£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...
£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...
$125 - $175 per annum: Carlton Senior Appointments: Senior Wealth Manager In...
$200 - $350 per annum: Carlton Senior Appointments: Managing Producer Office...
Day In a Page
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens