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Royal London Asset Management has warned unemployment will start to affect UK portfolios as problems in financials spread to the rest of the economy.

Martin Cholwill, manager of the £205.8m Royal London Equity Income trust, said investors had not yet discussed job cuts or outsourcing in detail.

"A lot of the market themes now are more consensual. One of the emerging themes people haven't been talking about is unemployment in the UK. You only have to know someone who's lost their job for you to get worried."

He argued labour reductions would push down consumer confidence as well as disposable incomes. "We're having much more of a consumer-led downturn," he said. "Along with financial services, that's a good chunk of the economy."

Mr Cholwill said manufacturers were already suffering due to high raw material prices and the chances of customers defaulting on their credit, which the manufacturers were finding increasingly difficult to insure against. "People who take on the prices won't be fine," he said.

As a result, he has been investing in the raw material suppliers themselves. "Integrated oil offers a good yield," he maintained, citing his top holding in BP and third-highest position in Royal Dutch Shell. "Even if the oil price came back to $100, they would still be good value."

He has also been picking hard commodity stocks such as Lonmin and Rio Tinto, despite the low yields in the area. "It's certainly a challenge, but I've got several investments in the mining sector because it has relatively free cash flow, which in the end will be realised as dividends."

Outside the raw materials sector, he has also sought to counteract UK consumer difficulties through companies with substantial overseas earnings, such as his second-largest bet Vodafone.

But he did not believe sterling necessarily benefited exporters at present. "It's a mug's game trying to forecast currencies, however many economists you speak to. I'm not expecting the pound to strengthen or weaken."

Currency was also a factor behind his decision not to use his permitted allocation of up to 20 per cent in overseas equities, unlike some of his UK equity income peers. "If you go too much overseas, you create a currency risk. I tend to stick with what I know best."

In the three years since 16 June 2005, a few months after Mr Cholwill took it over, the fund has returned 25.1 per cent against 23.5 per cent for the IMA UK Equity Income sector. It is ranked 28th out of 77 over this period.