The latest edition of the Computershare Dividend Monitor - the artist formerly known as the Link Dividend Monitor - has landed and some other factors remain the same, with British banks once again dishing out the most to investors across 2023.
HSBC returned to form as the most generous dividend payer for the first time in fifteen years, while oil and utility companies also contributed significantly to the overall total of £88.5bn in regular distributions (excluding special dividends).
Last year, we investigated how diversified the most widely-owned UK equity income funds are in terms of their income sources, and we found significant concentration among the biggest names, which you can read about here.
And with all that in mind we thought it wise to find out which of our most popular UK equity income funds are reaping the benefits from both HSBC’s revival and banks in general.
Looking at the five most widely-held funds of this type in our database, we found an interesting trend: they aren’t really interested.
The most popular of the big dividend players appears to be BP, which appears four times in the top 10 holdings of the five most popular UK equity income funds in our database.
Among the most popular stocks held by the most popular UK equity income funds in our database are Relx, Imperial Brands and Pearson - none of which make the top 15 dividend payers.
Artemis Income, run by veteran Adrian Frost, holds no banking stocks at all across its top 10 holdings.
The fund is £4.4bn in size and is owned by seven allocators on our database, preferring to source its income from 3i Group, Relx, and the London Stock Exchange.
Similarly, the most popular offering among our DFMs, Evenlode Income, also eschews financial services almost entirely – none of its top 10 holdings are part of this industry.
Redwheel UK Income does lean more into financials in general, using Barclays, Natwest, and Standard Chartered, though HSBC remains absent.
In fact, only one of the five most popular funds in our database – Henry Dixon’s Man GLG Income – opts for a stake in HSBC. Here, it’s the fund’s fourth largest holding with 4.2 per cent parked.
Dixon's well known focus on value stocks probably makes it inevitable that he would have some bank exposure.
In fact 85 per cent of the Man GLG fund's top 10 holdings are among the top 15 dividend payers.
And last time out we raised the interesting characteristics of Montanaro UK Income, a small- and mid-cap income fund, as something of an outlier among the peer group.
It's a fund which seems to have struck a chord with investors, as it is now held by five allocators on our database, with three of those buyers coming aboard in 2022, a time when much of the market was scrabbling to own value funds.
It has zero exposure to any of the largest dividend payers on the market, and that of course includes the big banks,
We had a chat with the fund’s manager Guido Dacie-Lombardo, who said small-cap firms have historically provided higher dividends than their large-cap counterparts when using the Numis All-Share and Numis Smaller Companies indices as benchmarks. He also pointed to the diversification benefits of looking further down the market cap chain for payouts.
“A significant portion of large-cap dividends in the UK comes from a small handful of sectors, including banks, energy and materials,” he said. “In contrast, income in small-cap comes from a broader and more diversified range of sectors, including industrials, technology and real estate.
"Furthermore, given there are only 24 companies in the UK with a market cap more than £10bn and a dividend yield of more than 3 per cent, which perhaps makes it ithat many large-cap UK income funds hold the same companies. As such, we believe there is a very strong argument to blending a large-cap income fund with a small-cap income fund in a portfolio, for better name and sector diversification.”
Never missing a chance to plug our work, you’ll see that Asset Allocator previously covered the shifting popularity of UK income funds over 2023 and this further reading can be found here.
