The fall in new economy stocks means UK equity income funds are once again producing higher historic...
The fall in new economy stocks means UK equity income funds are once again producing higher historic total returns than growth portfolios, writes Robert Stock.
According to Standard & Poor's, over 25, 10 and five years, equity income funds have had a clear lead on growth funds, although both lag the FTSE All-Share.
In the 25 years from 30 June 1976 to 29 June 2001, the average equity income fund returned 3,555.05%, compared to 3,223.30% for the average UK All Companies fund. The FTSE All-Share Index returned 3,750.6%, over the same time period. Over the 10 years from 28 June 1991 to 29 June 2001, the average equity income fund returned 189.77%, compared to 186.3% from the average UK All Companies fund and 216.09% from the FTSE All-Share.
Over the past five years, equity income funds have returned 63.32%, compared to 54.47% for funds in the UK All Companies sector and 67.17% in the FTSE All-Share.
Over the past 25 years on a discrete one year basis to 30 June, the average equity income fund outperformed the average growth fund on 14 occasions, according to Standard & Poor's.
Graham Kitchen, manager of Invesco Perpetual's Income & Growth fund, said the idea that dividend was dead has been laid to rest following the collapse in tech, media and telecoms. He said: 'Income funds tend to be a bit contrarian and are less likely to suffer from chasing fashions, as happened with technology and telecommunications.
'To pay a dividend, a company has to have earnings and cash flow which are good indicators of its well being. Income funds therefore tend to be a bit more fundamental in terms of their analysis and that, above all else, is where you add value. Trends are fine if you are talking about momentum, but we are much more bottom-up stockpickers. We are far more interested in what the company does and what the valuation is, rather than whether it is in a fashionable sector. You can get it right for a short period but ultimately corporate success determines share price.'
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