Mark Dampier: Success of unloved ITV is no mystery to clever investors

The Analyst

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

Sport
The giant banner displayed by Legia Warsaw supporters last night
football
News
news
Voices
The Ukip leader has consistently refused to be drawn on where he would mount an attempt to secure a parliamentary seat
voicesNigel Farage: Those who predicted we would lose momentum heading into the 2015 election are going to have to think again
News
Angelina Jolie with her father Jon Voight
people
PROMOTED VIDEO
Arts and Entertainment
Cara Delevingne made her acting debut in Anna Karenina in 2012
film Cara Delevingne 'in talks' to star in Zoolander sequel
News
i100
News
Melissa and Joan Rivers together at an NBC event in May 2014
peopleDaughter Melissa thanks fans for 'outpouring of support'
Life and Style
life
Life and Style
tech
Life and Style
One in six drivers cannot identify a single one of the main components found under the bonnet of an average car
motoringOne in six drivers can't carry out basic under-bonnet checks
News
i100
Voices
Pupils educated at schools like Eton (pictured) are far more likely to succeed in politics and the judiciary, the report found
voices
Arts and Entertainment
Simon Cowell is less than impressed with the Strictly/X Factor scheduling clash
tvSimon Cowell blasts BBC for breaking 'gentlemen's agreement' in scheduling war
News
peopleWrestling veteran drifting in and out of consciousness
Arts and Entertainment
Shady character: Jon Hamm as sports agent JB Bernstein in Million Dollar Arm
filmReview: Jon Hamm finally finds the right role on the big screen in Million Dollar Arm
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Consultants - Banking & Finance

    £20000 - £30000 per annum + OTE £40 - £50K first year: SThree: SThree Group an...

    Business Analyst,HR,Halifax,£400-450pd

    £400 - £450 per day + competitive: Orgtel: My client, a leading bank, is curre...

    Recruitment Consultants - IT - Trainee / Experienced

    £20000 - £30000 per annum + OTE £40-50K first year: SThree: The SThree group i...

    Cost Reporting-MI Packs-Edinburgh-Bank-£350/day

    £300 - £350 per day + competitive: Orgtel: Cost Reporting Manager - MI Packs -...

    Day In a Page

    Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

    The phoney war is over

    Russian troops and armour pour into Ukraine
    Potatoes could be off the menu as crop pests threaten UK

    Potatoes could be off the menu as crop pests threaten UK

    The world’s entire food system is under attack - and Britain is most at risk, according to a new study
    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
    From Mozart to Orson Welles: Creative geniuses who peaked too soon

    Creative geniuses who peaked too soon

    After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
    Caught in the crossfire of a cyber Cold War

    Caught in the crossfire of a cyber Cold War

    Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

    Salomé: A head for seduction

    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
    From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

    British Library celebrates all things Gothic

    Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
    The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

    Is the Hard Rock Café worth fighting for?

    The restaurant chain's owners are currently embroiled in a bitter legal dispute
    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

    In search of Caribbean soul food

    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
    11 best face powders

    11 best face powders

    Sweep away shiny skin with our pick of the best pressed and loose powder bases
    England vs Norway: Roy Hodgson's hands tied by exploding top flight

    Roy Hodgson's hands tied by exploding top flight

    Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
    Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

    Di Maria and Ronaldo: A tale of two Manchester United No 7s

    They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
    Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

    Robert Fisk: No victory for Israel despite weeks of devastation

    Palestinians have won: they are still in Gaza, and Hamas is still there
    Mary Beard writes character reference for Twitter troll who called her a 'slut'

    Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

    The Cambridge University classicist even wrote the student a character reference
    America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

    America’s new apartheid

    Prosperous white districts are choosing to break away from black cities and go it alone