Many dividend funds took a sizeable hit following the Gulf of Mexico oil spill, due to BP, the UK’s largest income stock, halting dividend payments until next year. This is proving a massive headache for fund managers who hold BP, which was responsible for £1 in every £6 of UK dividends.
Enter small-cap fund manager Chelverton with a very different approach to income investing. The Chelverton UK Equity Income Fund is sector-leading in terms of both capital growth and income. Indeed, the £16m fund has appreciated 14% since the beginning of the year. And it yields a whopping 6%, distributed quarterly. It has achieved this by investing solely in small-and mid-cap companies – it doesn’t hold a single FTSE 100 firm.
Set up by chartered accountant David Horner in 2006, the fund has transformed its performance in the last 12 months by focusing on firms with strong dividend pedigrees. Manager David Taylor seeks out names that have consistently paid up over a two-year period: “It is an indication of the balance-sheet strength of many smaller and mid-cap companies that so many have been able to maintain dividends and are in a position to grow them.”
The minimum investment in Chelverton’s income fund is £1,000 and the 5% initial fee is steep. However, a broker such as Bestinvest will rebate the up-front charge.
Small-cap funds do carry a higher degree of risk. But Taylor is confident in his approach: “these are essentially value stocks, relatively unloved companies with whom we enjoy an open dialogue around yield and outlook”.
Contact: Chelverton 01225-483030; Bestinvest 020-7189 9999.
Chelverton UK Equity Income Fund top ten holdings
| Name of holding | % of assets |
|---|---|
| Diploma | 2.9 |
| Office2Office | 2.9 |
| Braemar Shipping | 2.6 |
| Smiths News | 2.4 |
| N Brown | 2.4 |
| F&C Asset Managment | 2.2 |
| Marston’s | 2.2 |
| Wincanton | 2.1 |
| Hilton Foods | 2.1 |
| Telecom Plus | 2.0 |