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Asset Allocator

from Asset Allocator

American income

It's an adage as old as time that US equities are not a happy hunting ground for income investors.

This is partly the consequence of that market being dominated by technology businesses which have a habit of reinvesting cash flow rather than paying out dividends. 

The other consideration is that in the US, for tax reasons, share buybacks are more popular than dividends. This creates the impression of a low-yielding equity market. 

With those factors in mind, we had a peek at our Asset Allocator income database. 

The average allocation among the DFMs we cover to US funds is 9.7 per cent, which represents a reduction on the 10.1 per cent when we ran the numbers in May. 

As ever, there are outliers, in this case Liontrust has the largest overweight, with 19.8 per cent allocated to US equity funds. The next largest weighting is Brewin Dolphin at 17.7 per cent.

At the other end of the scale, Hawksmoor and You Investment Management have zero allocated to US equity funds within their income portfolios. 

The most popular US equity income mandate among the allocators we cover is the JP Morgan US Equity Income fund. 

As we have referenced before, this is held in 13 of the portfolios we cover, and has had five new buyers, compared to one seller, in 2022. 

The popularity this year might be explained by the performance, it has returned 10.7 per cent this year to date, compared with a loss of 6 per cent for the average fund in the IA North America sector. 

Of course many of the other funds in that sector have growth, rather than income, as a priority and so are likely to have been more exposed to big technology stocks that have underperformed this year.

The largest sector exposures in the JPM fund are to financials and healthcare, while technology is less than 10 per cent.

It must be said, however, that for its popularity the JPM fund is not the best-performing US equity income fund in our database over the past year.

That prize goes to BNY Mellon US Equity Income which is a top quartile performer over every time period but is only held by one DFM. It has also outperformed the JPM fund over three of the past four years.

The JPM fund has certainly cornered the market but it is worth remembering that other options are available.

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