All statements made in this article are opinions of the writer(s) and are not to be constituted as advice. Please refer to our full Risk Warning at the end of the article.

ANY DREAM WON’T DO…. (?)

Investors might be more tempted by the United Kingdom (UK) gilt market. The yield on the 10-year gilt is now 4.5%, the 2-year gilt is 5.0%.

Finding that 2-year gilt alluring? It seems a few people are. But HANG ON TO YOUR LOVE.

TEN GOOD REASONS

Here are ten good reasons why you could do better to consider a well-appointed UK Equity Income Fund than a 2-year gilt.

1. The re-investment risk: as rates eventually but inevitably fall, it will be hard to re-invest within the gilt market at anywhere near 5%.
2. Actually the Slater Income Fund still yields more than gilts. As of the end of August 2023, the Fund yields 5.4%. That’s 40% more than the UK equity market, 20% more than the 10-year gilt and nearly 10% more than the 2-year gilt.
3. Gilt yields are still negative in real terms. After inflation you are losing money in gilts.
4. Equities are a more natural inflation hedge. Inflation is companies putting their prices up.
5. Companies can grow their dividends. Bond coupons are static. A growing income stream should be more valuable than a static one. That is why bonds should yield more than equities!
6. It is an under-appreciated fact that year-to-date total dividends in the UK equity market are up +7.4% year on year (YoY).
7. Even better, the Slater Income Fund grew its dividend by +10% in H1 2023 YoY.
8. Whilst the investment industry points out that share prices can go down as well as up, the opposite is also true. Share prices can go up (yes!) as well as down.
9. UK equity market valuations are low in (a) an absolute sense (b) compared to history and (c) compared to other equity centres.
10. Within that, UK smaller companies are especially interesting. The Slater Income Fund typically has about 40% of its portfolio allocated outside the large and mid-caps. We believe these areas have great potential for capital upside whilst the most you can hope from your gilt is to be paid back at par.

SHARE MY WORLD

The mantra of the Slater Income Fund is “good and growing income”. The Fund’s yield, at 5.4% is not just “good” but still better than most alternatives. It is the “…and growing” part that makes it truly differentiated from anything in the fixed income or cash deposit markets.

Risk Warning: Past performance is not necessarily a guide to the future. The value of investments and the income from them may go down as well as up. Investors may not receive back their original investment. The Slater Income Fund has a concentrated portfolio which means greater exposure to a smaller number of securities than a more diversified portfolio. Charges are not made uniformly throughout the period of the investment. The Slater Income Fund invests in smaller companies and carries a higher degree of risk than funds investing in larger companies. The shares of smaller companies may be less liquid and their performance more volatile over shorter time periods. The Slater Income Fund can also invest in smaller companies listed on the Alternative Investment Market (AIM) which also carry the risks described above. The Slater Income Fund may invest in derivatives and forward transactions for the reduction of risk or costs, or the generation of additional capital or income with an acceptably low level of risk which is unlikely to increase the risk profile of the Funds significantly. This article is provided for information purposes only and should not be interpreted as investment advice. If you have any doubts as to the suitability of an investment, please consult your financial adviser.