Consistently active: Aviva Investors UK Listed Equity Income Fund

UK equity income fund managers Chris Murphy and James Balfour describe their investment process and philosophy.

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The Aviva Investors UK Listed Equity Income Fund aims to deliver an income return of 110 per cent of the income return of the FTSE® All Share Index, annualised, over three-year rolling periods, while also aiming to grow your investment over the long term (five years or more) by investing in shares of UK companies.

The fund is actively managed by Chris Murphy and James Balfour who run a high-conviction portfolio of stocks capable of generating higher levels of income and growing their dividends over the long term.

The portfolio aims to invest in companies with high barriers to entry – focused on future cash flow, cash compounders and recovery stocks – meaning the fund should be naturally more resilient, and exhibit lower levels of volatility versus its peers.

ESG is also integrated across the investment process, and the team actively engages with every company to help create change and enhance returns.

Figure 1: Fund performance: Ten years vs. FTSE All Share
Fund performance: Ten years vs. FTSE All Share
Past performance is not a reliable indicator of future performance. Source: Aviva Investors UK Listed Equity Income Fund. Total net return GBP source: FE Analytics. Ten-year performance data to March 31, 2020

Sector breakdown versus benchmark

While Murphy and Balfour aim to build a diversified portfolio of UK listed companies, they do not consider a company’s weight within the index when investing. Instead, they focus on identifying strong and steady businesses that can generate high levels of income.

This often results in the portfolio deviating from the benchmark, both in terms of sector and stock weighting levels, as can be seen in Figures 2 and 3.

Figure 2: Active sector weights
Active sector weights
Source: BlackRock Aladdin, Explore, Aviva Investors. Showing current portfolio sector allocation. As at March 31, 2020
Figure 3: Top ten active sector weights
Top ten active sector weights
Source: BlackRock Aladdin, Explore, Aviva Investors. Showing current portfolio holdings. As at March 31, 2020

How does the Aviva Investors UK Listed Equity Income Fund stand out?

Consistent approach

Murphy and Balfour's consistent investment approach aims to look through ongoing market noise, as well as the fear and greed that can often drives investor behaviour.  This avoids ‘herd chasing’ and allows core, change-led investment opportunities, backed by robust fundamental analysis, to be identified. Stock selection is focused on three silos based on company cash flow, as seen in Figure 4.

Figure 4: Stock selection approach
Stock selection approach
Source: Aviva Investors

Connected thinking

The investment strategy benefits from both scale and dynamism. While the UK Listed Equity Income Fund is itself relatively nimble, at around £950m, the broader global active equity team manages £36.1bn.

This experienced team of over 40 equity investment professionals shares a common investment language, philosophy and process across both geographic regions and industry sectors, facilitating effective connected thinking. 

This is enhanced by high levels of direct company access and seamless information flows from GRI (Global Responsible Investment), credit and multi-asset & macro teams, as well as support, oversight and challenge from our independent investment risk team. This overall framework enhances idea generation and helps optimise portfolio construction.

Consistent performance profile 

Murphy and Balfour assess and analyse companies consistently, from a broad idea set (see Figure 5). This has seen the fund consistently outperform the index over the past ten years (see Figure 1). Its distributions paid out have grown by 70 per cent since portfolio manager inception.1

Figure 5: Company analysis
Company analysis
Source: Aviva Investors

Reference

  1. Source: Lipper, JP Morgan/Bloomberg, Morningstar. As at December 31, 2019 for the income share class of 2 of the Aviva Investors UK Listed Equity Income Fund. Past performance is not a reliable indicator of future results

Key risks

The value of investments and the income from them will change over time. The Fund price may fall as well as rise and as a result you may not get back the original amount you invested.

Equities Risk: Equities can lose value rapidly, can remain at low prices indefinitely, and generally involve higher risks — especially market risk — than bonds or money market instruments. Bankruptcy or other financial restructuring can cause the issuer's equities to lose most or all of their value. 

Target outcome risk: Any outcomes stated as targets are not guaranteed and may not be achieved.

For further information on the risks and risk profiles of our funds, please refer to the relevant KIID and Prospectus.

Aviva Investors UK Listed Equity Income Fund

A strategy that employs a dynamic bottom-up investment process focusing on generating long-term capital growth and a yield that is higher than the FTSE All-Share Index. 

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UK Listed Equity Income Fund

Important information

Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (AIGSL). Unless stated otherwise any views and opinions are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. Information contained herein has been obtained from sources believed to be reliable but has not been independently verified by Aviva Investors and is not guaranteed to be accurate. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. Nothing in this material, including any references to specific securities, assets classes and financial markets is intended to or should be construed as advice or recommendations of any nature. Some data shown are hypothetical or projected and may not come to pass as stated due to changes in market conditions and are not guarantees of future outcomes. This material is not a recommendation to sell or purchase any investment.

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