Charlie Huggins, Fund Manager, speaks to an off-screen interviewer.

Charlie H: The portfolio is made up of two different sorts of business. On the one hand, we hold some higher-yielding businesses that offer a higher starting income, but where the growth potential in the income is more modest. And we tend to blend that with some lower-yielding businesses, where the starting yield is lower but where we see significant growth potential over the long-term. Whichever company we choose to invest in, we have to believe that that dividend is capable of being sustained, and can grow over time.

Steve Clayton, Head of Equity Funds, speaks.

Steve: Quality really matters for income investing because a high dividend yield could be a sign that a business is actually running into difficult times, and actually the yield is high because investors are saying the business is going to get into trouble.

So, understanding what’s really driving the business and focussing on those that actually have the quality and the strength to keep going, and keep paying those dividends, is absolutely vital.

The UK market is really attractive to income investors. And that’s because British companies tend to pay out a quite a high proportion of their profits in dividends and that gives the market a higher yield potential than most other parts of the world.

Charlie Huggins continues.

Charlie H: There are many very good businesses in the UK that we can invest in. We can invest in small, mid and larger sized businesses. So that gives us a lot to choose from.

Because we can hold businesses of different sizes, that gives us the ability to fid different sectors, as well, to invest for income.

As well as the more traditional income sectors, like oil and gas and utilities, we have consumer goods, we have consumer-facing businesses, we have real estate investment trusts, so exposure to commercial properties.

Steve Clayton continues.

Steve: One of the key attractions, we think, of the HL Select UK Income Shares fund is that we pay dividends on a monthly basis. One of the things we realised was that a lot of investors are looking for regular income. And so we built the fund to pay out monthly dividends and we have paid a dividend for every month of the fund’s life so far.

Income investing can actually be a great way of generating a strong total return over the long-term, because the compounding effect of reinvesting dividends really adds up over the long run.

Disclaimer: This video is not personal advice or a recommendation to invest. If you are unsure whether an investment I right for you, please seek advice. The value of investments can fall as well as rise, so you could get back less than you invest. Past performance is not a guide to the future. The HL Select UK Income Shares fund is managed by our sister company HL Fund Managers Ltd. Please see the fund’s key investor information for more details on risks and charges.

Yields will vary and aren’t a reliable indicator of future income. The fund is a concentrated portfolio which means each holding can have a significant impact on returns, but it is a higher risk approach. The fund can hold higher-risk smaller companies. The fund takes its charges from capital, this can increase the yield but reduce the potential for capital growth.

March 2019