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Why investing in UK equity income now could prove a slick move

These unloved funds and trusts might build your fortune


Once the mainstay of many a portfolio, UK equity income funds are now often seen as deeply unfashionable, in a world still in thrall to the glamour of US tech stocks.

But there are reasons to take a fresh look at these funds and trusts, which may have some international holdings, but focus on these shores.

Shares in British companies are regarded by many as undervalued, or even as bargain buys. That is certainly the view of private equity predators.

This represents an attractive opportunity, so long as you are ready for the shocks that inflation and a slowdown in an economic recovery could produce.

In the meantime, there is the prospect of a 3 per cent-plus income from dividends. That is alluring when deposit accounts are paying as little as 0.01 per cent, and the purchasing power of cash is being eroded by inflation.

UK dividend payouts may still be below their pre-pandemic level, but they rose by as much as 61 per cent in the first half of the year, according to investment managers Janus Henderson.

If this still sounds dull (I like dull, but I know it’s not to everyone’s taste) you may be more interested to learn that the prices of many of the 22 UK equity income investment trusts are at a discount to the value of their net assets. This means you are in effect buying underlying assets cheaply.

And they served their savers well when dividends were cancelled, or cut in 2020.

James Carthew of research firm QuotedData explains that trusts – some of which have paid dividends every year for the past half-century – used their revenue reserves to maintain, or even slightly increase their payouts.

Law Debenture, which has a 3.74 per cent dividend yield, and Murray Income, with a yield is 3.9 per cent, lead the field in Carthew’s ranking of these trusts.

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