Leader: Managers feel a positive vibe


The general election and campaigns run by all parties during it all bordered on dull, right up until the last minute and the release of the exit polls. Pundits promised to eat their hats and kilts if the pollsters were proved right, and sat red-faced when they were.

While the past few weeks have seen debate from all sides on the outcome, those in the finance community appear agreed that a majority parliament, albeit a slim one, is better for the UK economy, offering a more stable, decisive Government.

The wobbles and worries we saw ahead of the election were almost immediately eradicated, with the FTSE 100 rising more than 2 per cent in the day of the results.

It is this stability that is expected to continue to boost the UK stockmarket, and so benefit UK equity income funds, which are the subject of our cover story on page 22 this month. While lower yields amid rising valuations in UK equities and the concentration of holdings among UK equity income managers are still issues for the sector, the outlook is more positive, say managers.

However, one issue that remains is the rigid definition of the Investment Association’s UK Equity Income sector, which FE’s Patrick Enright discusses in Behind the Numbers on page 48.  The IA requires those in the sector to achieve 110 per cent of the yield of the FTSE All Share over a rolling three-year period. Until this is changed, he argues, there is an incentive for managers to take more risk and there is no focus on whether funds are actually growing their dividends or on the long-term consistency of dividends.

We stay with income funds this month in our fund manager profile, which looks at BlackRock’s Justin Christofel’s global multi-asset income fund. Having brought the fund over from the US, he is battling in a saturated market of funds that are appealing to retirees seeking income following the pension freedoms, but is trying to stand out from the crowd. It remains to be seen who will survive and who will thrive.