Invesco UK Equity High Income: September 2024 fund update

• The fund has been co-managed by Ciaran Mallon and James Goldstone since May 2020

• The fund aims to generate a high level of income and capital growth over the long term

• The fund has delivered better returns than the FTSE All Share index under Mallon and Goldstone’s tenure

• This fund does not feature on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The Invesco UK Equity High Income fund aims to generate a high level of income, greater than that of the FTSE All Share index, over rolling five year periods, as well as capital growth over the long term. The fund could form part of an income-focused investment portfolio, or part of a broader portfolio looking to add investments in UK companies.

Manager

The fund has been co-managed by Ciaran Mallon and James Goldstone since May 2020 when they took over responsibility for the fund from previous manager Mark Barnett.

Mallon began his investment career in 1994 at HSBC where he was an investment analyst. In 1999, he moved to United Friendly Asset Management to become a fund manager, before joining Invesco in 2005.

Goldstone began his career in 2001 at Credit Lyonnais working in pan European equity sales, before moving to UK focused equity sales roles at HSBC and Dresdner Kleinwort. He joined Invesco from Banco Espirito Santo in 2012.

Process

The fund aims to generate a high level of income, greater than that of the FTSE All Share index, over rolling five year periods, as well as capital growth over the long term.

The managers look for companies with a competitive advantage over their peers and aligned management teams who can allocate capital well. They like businesses to have strong balance sheets and an attractive free cash flow profile. They aim to build a fund made up of companies operating across a range of sectors, capable of flourishing in different economic environments.

The income generating potential of the fund is important and so the managers aim to run the fund at a yield premium to the FTSE All Share index. While UK equity income funds mainly invest in UK companies, up to 20% can be invested in overseas companies. Mallon and Goldstone make use of this flexibility, with around 10.5% of the fund currently invested in businesses listed overseas.

The fund currently has one investment in an unlisted company, Allied Minds, accounting for 0.12% of the fund’s value. The weight of unquoted investments can change as the fund size changes. Investors should be aware that investment in unquoted companies is higher risk, and they can be considerably less liquid (their shares are harder to trade) than those traded on established stock exchanges.

The managers have made a number of changes to the fund’s investments over the last 12 months, this has included increasing investments in the industrials, financials and energy sectors. This included new investments in London Stock Exchange group as well as in industrial business, Rotork. Pharmaceutical company AstraZeneca was sold from the fund.

The managers have the flexibility to use derivatives which adds risk.

Culture

Both Ciaran Mallon and James Goldstone are based in Henley alongside the rest of the UK equities team. The wider UK team work together closely, creating a collegiate environment where challenge and debate is encouraged. The managers are given autonomy to invest the way they see fit but enjoy and can make use of the resources that come with being part of a large organisation.

ESG Integration

The approach to ESG integration differs between investment teams at Invesco. However, all teams are supported by a centralised team of ESG professionals, located in three regions; the US, Asia and EMEA. The Global ESG team is responsible for ensuring ESG best practice is upheld across the firm including through investment team ESG integration, research, voting and engagement. The team also supports the distribution team with client engagement and advises the product teams on ESG innovation. Invesco also has dedicated ESG specialists within certain individual investment teams, who are closely connected with the Global ESG team.

Fund managers leverage insights from a wide range of third-party research and service providers and have access to Invesco’s proprietary ratings tool, ESGintel, which provides data and insights on a large number of companies across the globe.

The firm’s ESG approach, engagement case studies and headline voting records are all available in the annual ESG Investment Stewardship report. They also offer a voting dashboard which allows a user to view how each fund voted on each resolution. However, no voting rationale is provided.

While consideration of ESG related investment risks is integrated across the firm, this fund is not managed to an ESG mandate and therefore the risk and reward of any investment in the fund is most important.

Cost

The fund has an annual ongoing fund charge of 0.87%. The HL platform fee of up to 0.45% a year also applies, except in the HL Junior ISA, where no account charge applies. The annual charge is taken from capital rather than income generated, which could boost income, but reduces the potential for capital growth.

Performance

Since Mallon and Goldstone became managers of the fund in May 2020, the fund has delivered performance of 68.46%, marginally ahead of the 67.10% return from the FTSE All Share index over the same period. Past performance isn’t a guide to the future.

Over the last year, the fund has delivered returns of 23.47%, performing better than the FTSE All Share index which generated a return of 21.33%. Our analysis suggests that over this period, the fund’s investments in retailer Next and Barclays bank have been among the key contributors to the fund’s performance. On the other hand, the fund’s investments in utilities and energy proved to be a headwind to performance.

At the time of writing, the fund yields 3.81%. Income isn’t guaranteed, and yields aren’t a reliable indicator of future income.