UK medium risk

This is split between the equity income funds and growth funds, including smaller companies. Last time we mentioned that we might be moving into a period when growth funds might outperform, though we hoped that this would be with the stock market moving up. In fact in a falling market they just fell less than equity income funds, at least our selection did, all but one of whom also outperformed the FTSE 100 index (-6%) since the beginning of the year. M&G Recovery (-0.1%) showed best, followed by Schroder UK Alpha (-2%), Newton UK Opps (-3%) and Artemis (-7%). Perhaps the biggest surprise is M&G Smaller Companies performing so relatively well (+1.4%), particularly as the UK economy is so exposed.

Only two of the equity income funds lost less than the FTSE 100, Standard Life UK Equity High Income (-3%), and Neptune (-5%), the others doing less well: Invesco Perpetual (-7%), Newton (-8%), and Jupiter Income (-9%). Such underperformance is rare, and it is sector-wide, and our experience very strongly suggests that these funds should be purchased on such weakness. The yields are very attractive, and remember that it is the attraction of the yield (and the ability of the payout to increase year on year) which eventually drags up the capital value as well. For example, the Newton Higher Income fund has a yield of 6%, and one of the very best track records for dividend payouts and growth in the payout, so when the manager says that she is focussed on stocks that offer impressive levels of cash generation to support strong and rising dividends, you must sit up and listen.

For these reasons, although the Jupiter and Newton equity income funds are not rated, to take advantage of current weakness in this sector (and the broader attractions of the UK stock market) we would want to buy the process of the Newton fund, and the vast experience of the Jupiter manager (Tony Nutt).

Co and Fund	Rating	Risk
Invesco Perpetual Income	Silver	6.0	About	Buy
Newton Higher Income	None	5.8	About	Buy
Neptune Income	Silver	5.8	About	Buy
Jupiter Income	None	5.9	About	Buy
Standard Life UK Equity High Income	Silver	6.7	About	Buy
M&G Recovery	Gold	6.5	About	Buy
Newton UK Opportunities	Silver	5.3	About	Buy
Schroders UK Alpha Plus	Gold	6.3	About	Buy
Artemis UK Special Sits	Bronze	6.0	About	Buy
M&G Smaller Companies	Silver	7.1	About	Buy

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