Manager focus: Leigh Harrison
Share
Leigh Harrison, the head of UK equities at Threadneedle, was last week named as one of the few equity income fund managers to have found the majority of their new stock ideas outside the FTSE 100.
Harrison manages the £617.9m Threadneedle UK Equity Income fund, the £189.6m UK Equity Alpha Income and the £189.6m UK fund.
Standard & Poor’s Fund Services’ recent review of the equity income sector warned there is rising concern over the degree of ‘clustering’ among funds in the peer group.
“The UK market is concentrated in terms of dividends, with the seven largest capitalisations representing over 50% of all distributions,” Harrison says. “We have therefore been looking for these safer sources of income away from some of the big yielders, where we believe dividends not to be as well underpinned.”
“We have been looking for safer sources of income away from some of the big yielders”
Leigh Harrison
He says investors seem to have taken the view that strengthened balance sheets and an improved economic outlook will support cash flows and dividends in future.
“We remain more circumspect,” he says. The Threadneedle team anticipates that an anaemic economic recovery will keep the pressure on cash flows and dividends in 2010.
Harrison therefore expects more dividend cuts and has been looking for safer sources of income.
He says the analytical work and research the Threadneedle equity team conducts into companies has highlighted good opportunities in industrial stocks over the past few months. He singles out names such as Melrose, an engineering firm, and Ashtead, a plant and machinery rental firm.
Harrison says both firms present the attraction of good and well-supported dividends, as well as opportunities for capital appreciation. He expects Melrose as well as Ashtead to benefit directly from the normalisation of the economic backdrop.
According to Trustnet, the UK Equity Alpha Income is 31.3% invested in financials, compared with 26% in the benchmark. Some 20.4% is invested in industrials and 15.9% in consumer services.
The Equity Income fund is 19.7% in financials, compared with 21.6% in the benchmark, and industrials 18.2%, compared with 16.8% in the benchmark. Oil and gas make up 12% of the portfolio.
