by Val Cipriani, Investors Chronicle, March 13, 2024:
When picking a fund, you should always look under the bonnet at how the portfolio differs from the benchmark and which stocks the managers are betting big on. Comparing the portfolio positionings of a range of funds gives us an idea of which stocks are currently in favour among investment professionals. They don’t always know best but can be a useful source of ideas.
With this in mind, we looked at the top 10 holdings of 12 prominent UK equity income vehicles. These included the seven investment trusts with more than £500mn in assets in the AIC UK equity income sector: City of London (CTY), Finsbury Growth & Income (FGT), Edinburgh Investment Trust (EDIN), Law Debenture (LWDB), Murray Income Trust (MUT), Merchants Trust (MRCH) and Temple Bar (TMPL)..
Aside from Shell, the top 2023 dividend payers are not particularly prominent in these portfolios. Only three funds hold HSBC in their top 10, all underweight. Glencore (GLEN), British American Tobacco (BATS) and Rio Tinto (RIO) also featured quite sporadically. Together, the five paid £29.5bn-worth of dividends in 2023, a third of the total. Meanwhile, BP, Unilever, AstraZeneca (AZN) and GSK, which were next in the 2023 dividends chart, proved more popular alternatives..
Aside from Finsbury Growth & Income, Temple Bar is the most concentrated of the group with 49.3 per cent of its portfolio in its top 10 stocks. James Carthew, head of investment companies at QuotedData, says he finds the trust interesting because “it is the most unashamedly ‘value-oriented’” of the UK equity income trusts, at a time when the UK market is especially undervalued.
Temple Bar’s managers “are convinced that eventually value will be appreciated by investors. In the meantime, the companies that they hold are buying back shares and upping their dividends”, Carthew says.
When it comes to picking a fund, you want to think about how ‘active’ it is both in terms of ideas and level of conviction in them. Temple Bar also has a top 10 that looks radically different from that of the index: it has chunky positions in Shell and BP, but then focuses on less obvious plays, including a few European stocks such as TotalEnergies.
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