Equity Income  

Fund Review: Premier Optimum Income

This article is part of
Fund Review: UK Equity Income

Fund Review: Premier Optimum Income

This £76m fund was launched in 2008 with the aim of providing a high level of income together with the prospect of long-term capital growth from an actively managed portfolio of equities.

Managed by Chris Wright, the fund sits in the Investment Association UK Equity Income sector, having moved across from the IA Europe including UK Sector in March 2013, and this year the fund made its debut in the Investment Adviser 100 Club.

In such a competitive sector, Mr Wright highlights the importance of the “quality of the decision making, the integrity of the process and it being repeatable over time and through different market conditions”. He explains: “Stock selection is at the core of this process; once we’ve screened the market for companies with a good current yield, we apply three key criteria in the decision-making process: quality, value and momentum.”

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The manager says the quality measures usually manifest themselves in long-term financial strength and a management team that executes to plan over time, while valuation is a key driver of share prices. The Premier team applies a range of appropriate metrics in this area, depending on the type of company, while looking to avoid value traps. 

“By momentum, we mean good business momentum – companies that are on improving trends. This leads to improving financials, which translates into good share price momentum,” adds Mr Wright. 

The portfolio holds 50-60 positions across the market capitalisation spectrum, with the manager noting the team tends to “top and tail” positions as valuations ebb and flow. 

In addition, Mr Wright says yield is enhanced by an options strategy, which is “simple and repeatable”. “We sell call options against some of the holdings in the fund and we can take the money received from the option premium as income to enhance the dividend distribution from the fund. The impact of this strategy, other than increasing the dividend and yield, is that in rising markets we are likely to miss out on some of the upside, but the options strategy can potentially help the fund’s returns in flat or falling markets,” he explains.

The fund’s C income share class sits at a risk-reward level of five out of seven, while ongoing charges are 1.03 per cent, the key investor information document shows. 

For the five-year period to November 10 the fund has delivered a return of 79.6 per cent in sterling terms, compared with the IA UK Equity Income sector average of 67.7 per cent, data from FE Analytics shows. It has also outperformed the sector average across one- and three-year time periods. Mr Wright claims the fund is currently the highest yielding fund in the sector, with an historic yield of 7.4 per cent, as of November 4, adding “we have grown the dividend per share every year since being in the UK Equity Income sector”. 

In the wake of Brexit, the manager acknowledged the team “made a few changes to manage the risk in the portfolio”, which included “selling some of the overseas earners that looked very expensive and adding to a few very oversold holdings, while also raising a little cash”.