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UBS UK Equity Income Fund

Investment objective

The Fund seeks to generate income and achieve long-term capital growth through active management of a diversified portfolio invested primarily in UK equities

The Fund aims to outperform the IA UK Equity Income sector, provide a yield of 110% of the FTSE All-Share Index and deliver year-on-year dividend growth

In addition, the fund's managers aim to make use of UCITS III investment powers to smooth its income stream and also to look for additional income potential

Steve Magill

Fund Manager
Steve Magill
Biography (PDF, 101 KB)

Guy Walker

Fund Manager
Guy Walker
Biography (PDF, 48 KB)

The value of income

Around 80% of long term UK equity returns are driven by dividends and invested income, so it is no wonder the IA UK Equity Income sector is one of the most popular categories for retail investors. Value investing has also been widely recognised as a long term winning strategy, generating superior returns over many decades. By combining the two, we believe we can offer clients strong investment returns as well as a stable and rising income.

Investment opportunity

Income as a key source of returns: For the UK market, as shown in Chart 1, long term real returns (over and above inflation) can be clearly seen to be driven by income and reinvested income, with only 0.8% of the 5.5% real long term growth rate driven by capital gains. This has been widely recognised by UK retail investors, with the IA UK Income sector being one of the largest and most popular, valued at nearly GBP 60bn.1

Chart 1: Income is a key driver of long term equity returns

Impact of reinvested dividends on UK and US equity returns, 1900-2016

Source: Credit Suisse Global Investment Returns Yearbook 2017 Data as of 28 February 2017

Source: Credit Suisse Global Investment Returns Yearbook 2017 Data as of 28 February 2017

Value is a long term winning strategy and is now performing well again:

Value investing has also been widely accepted as a long term winning strategy supported by much academic evidence over the almost hundred years since Benjamin Graham's pivotal book Security Analysis introduced the concept in 1934. Chart 2 is one of many charts that demonstrate the long term superior returns from pursuing a Value-based investment approach.

Chart 2: Value investing is successful over time

Cumulative returns from UK size and book-to-market portfolios (1955-2012)

Credit Suisse Global Investment Returns Sourcebook 2013

Source: Credit Suisse Global Investment Returns Sourcebook 2013

Value tends to outperform in cycles, and Chart 3 shows that it has been out of favour for many years since the Financial Crisis in 2007/8. The key driver for this, in our view, was investors chasing "high quality" stocks in a period of extremely low bond yields. These so-called "bond-proxies" moved to highly overvalued levels with Value stocks being unusually cheap. 2016 saw a big reversal in this trend, and we believe there is further to go.

Chart 3: Signs that Value style is coming back?

Performance of the S&P UK value index relative to the FTSE All-Share index 2007-2017

UBS Asset Management, as of 31 July 2017

Source: UBS Asset Management, as of 31 July 2017

A proven approach

Our record of managing UK Equity Value portfolios dates back well over 30 years and has been at the heart of our management of UK equities where we remain one of the largest specialist UK equity managers in the market, managing GBP 5.0bn, across a client base with an average tenure of over 25 years.

Value investing at UBS is based on some simple, enduring principles. We believe that shares have a long term or 'fair' value that may differ from the current price. In shorter term periods share prices may differ from this 'fair value' due to fear, greed, fashion or short-termism. A fundamental stock- picking approach can exploit these periods of mis-pricing based on assessing long term histories of company profit, cashflow and valuation. Over the long term we expect to outperform the UK market and UK Value style indices based on the team's knowledge and expertise, as evidenced by the UK Equity Value strategy's historic performance.

A consistent and disciplined value-based approach

A consistent and disciplined value-based approach

Applying this approach to the UK Equity Income Fund

Having initially been established with dedicated resources, the UK Equity Income fund was transferred to the management of the UK Value team in 2013, as we believed their fundamental approach would be well suited to running a retail fund. In fact, the UK Value approach has typically resulted in a yield premium over time and we observed that there were very few value-based funds in the sector, thereby providing a key differentiation against other funds in the market.

Adhering to the same disciplines that has led to the maintenance of a large and loyal institutional client base, the team took over the UK Equity Income Fund, with a goal of maintaining a minimum of 110% yield of the FTSE All- Share index and a focused, contrarian approach.

Our Process

Our Process

An experienced team with a consistent approach

The European Value team is led by Steve Magill. Within a long and distinguished career at UBS AM, Steve has been a UK portfolio manager, Head of Healthcare Research and Deputy Head of European Research. He has been a Managing Director at UBS AM for over 14 years and joined the Value team in 2009, becoming a pivotal part of the recent success of the team. Steve has been managing the UK Income fund since 2013, delivering top quartile performance against peers.1

Guy Walker works alongside Steve as a senior portfolio manager. Guy began his career at UBS AM, working alongside Steve as an analyst in the early 2000s. He subsequently worked at a major value-based competitor, before re-joining UBS in 2015. Guy was also formerly global head of ESG Investment at a competitor firm and shares the key principles and beliefs in fundamental value-investing, which he has practiced for over 20 years, eight of which have been at UBS.

Steve and Guy operate as an independent investment team within UBS, supported by a strong global infrastructure. With central trading, risk management and a separate corporate governance team, they are given the flexibility to deliver results for clients while leveraging off a strong global network.

Kevin Barker is a senior equity specialist who has worked closely with Steve since 1986. As a former portfolio manager, analyst and Deputy Head of UK Equities with 30 years of experience at UBS AM, 20 of which as a UK portfolio manager, Kevin takes responsibility for client communication, helping to maximise the focus of the team's time on picking stocks.

Accessing the Fund

The Fund is available either directly from UBS Asset Management:

Broker desk:
0800 587 2111

Or through