Since the credit crunch UK Equity Income funds have been very popular. I think this is for two main reasons. Firstly in a low growth environment income becomes a bigger part of total return and helps underpin portfolio growth and does help offset any erosion in capital. The second reason is down to the nature of business that pays dividends. These businesses are usually seen as 'defensives' with stable and predictable cash flows, allowing them to return cash to investors on a regular basis. Since the credit crunch many investors have favoured these more defensive businesses that are more resilient during economic downturns.
There are many funds available to investors wishing to have exposure to UK Equity Income stocks. Probably the most famous is Neil Woodford's Invesco Perpetual Income and High Income funds. These funds hold stocks like AstraZeneca (c.6% yield), British American Tobacco (c. 4% yield) and Rolls Royce (c. 3.5% yield). I would argue however that this fund is now too large and that some of the smaller, more nimble funds are likely to perform better and also contain less stock specific risk. Neil Woodford has large allocations to a handful of companies which could add a layer of risk. Unicorn UK Income has been the stand out performer over recent years, and other funds such as Royal London UK Equity Income also have excellent track records.
So when looking for income from investments, equities should be considered. Many businesses are available on attractive yields, and often grow these dividends as well as having the potential for capital growth, something bonds don't offer. Many corporates are also flush with cash on their balance sheets so we may see special dividends, with even more cash returned to investors!
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