UK income

Can stock selection make the difference in the longer-term?

Mark Wharrier |21-Oct-2016

The volatility created by macroeconomic ‘noise’ has thrown up opportunities. Mark Wharrier, Fund Manager of the BlackRock UK Income Fund discusses how he is tackling the current environment.

 


The market over the last three years has been very macro driven, however we are pleased to see that the fund return has been a function of stock picking, rather than correctly predicting a big macro call or having a style in favour. We have delivered across all three of the fund’s strategies of growth companies, yield and free cash flow and turnaround situations. Many of the companies that have contributed positively would not be found in traditional income funds and we feel this is what ultimately differentiates us from our peers.

Interestingly most of the fund’s outperformance has been driven by shares that yield less than the market. We highlight that shares with a dividend yield of zero to 4% have dominated the fund return*. Many companies with attractive growth profiles tend to have a sub-market dividend yield, which is why we structured the fund with a view to capturing these dividend payers of the future. Most importantly, investing in low yielding companies hasn’t come at the expense of the dividend or growth of the dividend, indeed we have grown the dividend by 22% over the last three years**.

Many of the companies that have contributed positively would not be found in traditional income funds and we feel this is what ultimately differentiates us from our peers

The current environment sometimes seems surreal; trillions of dollars of negative yielding debt, serious geopolitical tensions and authorities pushing the boundaries of monetary policy. We don’t expect this environment to change any time soon and we need be aware of both the opportunities and risks for our companies given these circumstances. Our best response is to continue to focus on where we can make a difference; stock picking, on free cashflow and taking advantage of the inevitable periods of volatility.

Listen to the replay of the team’s three year anniversary webcast to find out more about how the UK Income team are tackling the current environment.

View the BlackRock UK Income Fund factsheet

Mark Wharrier
Managing Director and Portfolio Manager, BlackRock UK Income Fund
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*Source: BlackRock as at 30 September 2013 - 30 September 2016.
**Source: BlackRock as at 30 September 2016. A Share class from 16-March-1984 to close of business 30-June-2011, D share class from close of business 30-June-2011 to date specified. Share class performance is calculated on a bid to bid price basis, with income reinvested, net of fees. From 30 September 2013 to 30 September 2016. Outperformance of FTSE All Share. Long term performance: 3 Years p.a. Fund: 10.4%, FTSE All Share: 6.6%. 5 Years p.a. Fund: 11.1%, FTSE All Share: 11.0%. 10 Years p.a. Fund: 6.5%, FTSE All Share: 5.8%.

Past performance is not a guide to current or future performance. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested. Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time. Fund specific risks: Investors in this Fund should understand that capital growth is not a priority and values may fluctuate and the level of income may vary from time to time and is not guaranteed. Where some or all of the fund’s charges are taken from capital rather than income, this will increase yield but decrease the potential for capital growth. Smaller company investments are often associated with greater investment risk than those of larger company shares. Investment risk is concentrated in specific sectors, countries, currencies or companies. This means the Fund is more sensitive to any localised economic, market, political or regulatory events.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or financial product or to adopt any investment strategy. The opinions expressed are as of October 2016 and may change as subsequent conditions vary.

CARS ref: UKRSM-5365