Having a core of UK-based, profitable, dividend paying companies as your core is a sensible idea, according to Ben Yearsley, head of investment research at Charles Stanley.
Darius McDermott, managing director of Chelsea Financial Services, says UK Equity Income funds should form the basis of most investors’ portfolios.
He says: “They offer a more defensive way to invest in UK companies, while at the same time are able to produce an income, so they are suitable for most people.
“Funds within this sector can sit nicely at the core of any portfolio. Younger or more risk tolerant investors may choose to have a smaller proportion in this area, older or more risk averse investors may want to have a higher weighting.
“They also work nicely for investors who want a diversified income portfolio.
“Over the last few years, this type of fund has been extremely popular amongst the latter type of investor who are concerned about the outlook for bonds but aware that cash is paying next to nothing.
“They have been willing to take a bit more risk and have been well rewarded for doing so.”
David Holloway, marketing director of Rathbone Unit Trust Management, says UK Equity Income funds are suitable for someone looking for a product that aims to combat inflation by providing a rising income and strong capital growth.
Mr Holloway says: “The investor can invest dividend income up to retirement, adding to total return and take income in retirement while the capital continues to grow.
“The reinvestment of income adds much to total return over the longer term, especially if it is growing.
“It is unlikely that we will have one job for life and there is the prospect of facing an extended working life, and a second career at a lower income.
“Increasing life expectancy means more funding is needed for longer and we can no longer rely on other ‘traditional’ forms of income alone.
“Equity income funds can provide a flexible solution to these issues. The issue now is not what happens when you die but what happens while you live.”
