The UK Equity Income Unconstrained Fund aims to deliver a yield in excess of 110% of the FTSE All-Share Index yield over a rolling three-year period.
It has comfortably exceeded this target, producing an average yield of 115% versus the index over the Fund's last three financial years.1 This impressive performance can be attributed to a number of factors.
First, the Fund benefits from an unconstrained mandate, which provides the flexibility to invest in companies irrespective of sector, style characteristics or market capitalisation. This broadens the investable universe beyond the large-cap, low-growth income stalwarts found in many of the more traditional, index-orientated UK equity income funds.
Indeed, the Fund holds a number of small and mid-cap stocks on the FTSE 250 - an index that has delivered a dividend growth rate that far exceeds the FTSE 100 Index.2
Dividend growth reflecting underlying strength
Second, in addition to investing in companies that we believe can deliver yield at a premium to the market, we seek to identify opportunities with a strong dividend growth profile. These are companies that can not only generate meaningful distributions, but have the potential to increase their dividends significantly year after year. Such companies have historically outperformed those that cut dividends over time. 3 In short, this outperformance can be attributed to two key elements: the strength of business models able to consistently increase distributions to shareholders; and, the importance of dividends to total equity market returns over time.
By drawing upon a broad pool of opportunities, including firms that may pay a special dividend, the end result is a diversified portfolio of high conviction stock ideas that we believe can generate attractive total returns in a variety of market conditions.
Lastly, the full market coverage and close corporate contact of our 12-strong UK equities team gives us deep insight into the stocks in which we invest. Debate is also encouraged at each stage of the investment process, meaning only our best investment ideas enter the Fund.
These factors give us confidence that the UK Equity Income Unconstrained Fund can continue to deliver strong dividend returns in 2017 and beyond.
The value of an investment is not guaranteed and can go down as well as up. An investor may get back less than they invested. Past performance is not a guide to the future.
1 Standard Life Investments, Morningstar, 28 February 2017
2 DataStream and Standard Life Investments, 1 October 2016
3 Goldman Sachs, 31 December 2016