Now could be the time for equity income

Katen Patel, portfolio manager, discusses the case for equity income

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May 30, 2019
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With the financial headlines filled with talk of trade wars, volatility and market corrections, one could infer that now is the time to be investing in bond and absolute return portfolios. However, all of these news headlines, combined with the uncertainty around Brexit, have resulted in the UK equity market looking very cheap compared to other markets1. Additionally, if you compare the UK equity market dividend yield with the yield on 10-year Gilts, the yield gap has not been wider since the 1920s!2

In this environment, the UK Equity Income sector deserves serious consideration. The sector not only allows investors who prefer the regular income to receive a healthy level of cash flow year in year out, but also provides the opportunity for investors who require capital growth to capitalise on the power of reinvested dividends.

Active management is crucial

When it comes to equity income, actively managed funds have a clear advantage. Only rigorous analysis can uncover those companies that can continue to maintain or grow their dividend through more difficult economic times, or identify companies that may perhaps be over extending themselves with their dividend payments and could therefore be subject to a significant fall in share price.

Income investing also doesn’t necessarily mean mega-cap, bond proxy, defensive-type stocks. The JPM UK Equity Income Fund, for example, is an unconstrained vehicle, which aims to provide capital growth alongside a dividend yield in excess of the FTSE All Share. The fund is actively managed and seeks out companies that have strong balance sheets and high free cash flow yields, among other things.

Typically, companies held in the fund will either be offering a high dividend yield because they have a more mature business model, or they will be reinvesting the free cash flow they generate back in to their business at attractive return rates in combination with growing the dividend over time in line with earnings growth.

It’s this attractive mix of companies that allows the fund to be overweight small and mid cap equities, yet still offer a forward yield of 5.2%, which is a 12% premium to the FTSE All Share!3 

Katen recently took part in a Wired debate on mid-cap investing.

To watch the video please click here


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1 based on an average of price to earnings, price to book and price to dividend.

2 Citi research as at 24 April 2019 (Datastream, Citi research)

3 J.P. Morgan Asset management as at 30 April 2019. The figures stated are dividend yields based on the dividend expectations of the underlying holdings within the fund. The dividend yield is an estimated projected figure based on the assumption that dividend rates per share remain the same over the coming year. They do not take into account any funds costs. Please note that the JPM UK Equity Income Fund currently charges to capital the fees of the ACD and operating expenses. Dividends are not guaranteed. Past performance and yield are not a reliable indicator of current and future results.  

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This is a marketing communication and as such the views contained herein are not to be taken as an advice or recommendation to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are, unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and investors may not get back the full amount invested. Past performance and yield are not a reliable indicator of current and future results. There is no guarantee that any forecast made will come to pass. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy. This communication is issued in Europe (excluding UK) by JPMorgan Asset Management (Europe) S.à r.l., 6 route de Trèves, L-2633 Senningerberg, Grand Duchy of Luxembourg, R.C.S. Luxembourg B27900, corporate capital EUR 10.000.000. This communication is issued in the UK by JPMorgan Asset Management (UK) Limited, which is authorised and regulated by the Financial Conduct Authority. Registered in England No. 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP. 0903c02a825db0ce

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Katen Patel

Fund Manager, J.P. Morgan Asset Management

Katen Patel is portfolio manager of the JPMorgan Mid Cap and JPMorgan Smaller Companies Investment Trusts, as well as the JPM UK Smaller Companies Fund within J.P. Morgan Asset Management's UK Equity team.

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