To sum up then and answer the headline question, does the UK equity income sector work in a period of high inflation, like we have now? Yes it can — offering a better return over the medium to longer term than both cash and bonds, and, with the added benefit in the case of investment trusts of being able to use reserves to keep up income payments to further fight against a rising consumer price index.
Funds to consider
IFSL Marlborough Multi Cap Income
This fund ventures into the small-cap space where other income funds fear to tread. It aims to combine fast and sustainable dividend growth with capital appreciation. The acclaimed stockpicking ability of the Hargreave Hale team has led to significant outperformance since the fund launched in July 2011. The portfolio is constructed primarily on a bottom-up basis; however, top-down drivers do also influence the creation of the portfolio. The fund uses a blend of “value” and “growth” holdings to meet its yield objective.
Murray Income Trust
The Murray Income Trust aims to provide a high and growing income combined with capital growth by investing in a portfolio of 30-70 UK companies. It is conservatively managed and targets resilient companies that can thrive in any economic scenario. This trust is a portfolio of high-quality companies that deliver a resilient income, as well as offering strong capital growth prospects. It is dependable, diversified and differentiated, and has delivered consistently strong performance at a time when it has been challenging for UK equities. The trust has grown its dividend for investors for almost 50 years.
Schroder Income Growth
Launched in 1995, the Schroder Income Growth fund’s principal aim is to provide real growth of income in excess of the rate of inflation. It invests mainly in the shares of UK larger and medium-sized companies, although it can also invest some of the portfolio in the shares of companies listed abroad. Schroder Income Growth is a solid operator, which does what it says on the tin — it is a consistent performer, targeting the shares of UK companies paying dividends that should grow faster than the rate of inflation. The trust has raised its dividend each year for the past 25 years, making it an ideal option for income seekers.
City of London Investment Trust
Launched in 1891, the City of London Investment Trust is one of the longest-running investment trusts in the UK. It aims to provide growth in income and capital by investing predominantly in larger UK companies with international exposure. It has increased its dividend payment every year for the past 56 years. Manager Job Curtis has run the trust for more than three decades and has generated steady returns over a long period. Dividend income is of the utmost importance to the board, making the City of London Investment Trust an excellent core option for investors wanting UK equity income exposure.
