Ask Leigh Harrison about the health of the British economy and he is cautious. Although he doesn’t believe we are facing a double-dip recession, we will only scrape 1% growth next year, he tells The Daily Telegraph.
However, he also thinks his gloomy prognosis won’t stop him delivering returns of 7%-10% on his Threadneedle UK Equity Income Fund. The fund has returned a tasty 32.8% over the past five years.
Harrison believes that by sticking to three key investment themes he can continue to deliver that sort of growth. And those are: British companies that can benefit from Asian growth; mega caps that are cheap, yet high yielding; and underrated, unloved consumer-facing domestic stocks.
One stock that fits the theme is GlaxoSmithKline. Pharmaceutical stocks may be facing worrying times due to looming “patent cliffs”. However, Glaxo yields 5.4% and is “very cash generative, has good management and we see it delivering modest growth streams”.
Harrison also likes BT. “The market has been very hung up on its pension deficit and ignored the improvement in its operating rates.” The firm’s strong cash flow and a yield of almost 6% outweigh the uncertainty over the resolution of its monster pension deficit. “It is a boring but reliable stock.”
With a number of other large-cap stocks now offering dividend yields of more than 5%, Harrison believes there are still plenty of buying opportunities out there.
The fund has an initial charge of 3.75% (this can be avoided by purchasing it via a fund supermarket) and an annual fee of 1.5%.
Contact: 0800-068 3000.
Threadneedle UK Equity Income Fund top ten holdings
| Name of holding | % of assets |
|---|---|
| Royal Dutch Shell B Ord | 5.8 |
| GlaxoSmithKline | 5.1 |
| British American Tobacco | 4.5 |
| AstraZeneca | 4.2 |
| HSBC Holdings | 4.0 |
| BP | 3.8 |
| Unilever | 3.2 |
| BT Group | 3.0 |
| Centrica | 2.6 |
| Anglo American | 2.6 |