The fund that delivers through thick and thin

FUND manager Chris Murphy has worked in the City for more than 30 years – running money both under Labour and the Tories – first as an analyst at Lehman Brothers before managing portfolios for Framlington and now Aviva.

Along the way, he’s found out what he is good at, and what he is not so good at as an investment expert. His special skill set, he says is in analysing the business models of companies listed on the UK stock market and working out whether they might make solid investments.

It does not extend to poring over the financial numbers of start-up businesses that have yet come to market, a role that he would rather leave to private equity managers.

It will therefore not surprise anyone to learn that the £979 million Aviva Investors UK Listed Equity Income fund he has managed for the past 13 years does not include any unquoted holdings. ‘I do what it says on the fund’s tin lid,’ he says, ‘and that is invest in a portfolio of listed UK companies that are cash generative through thick and thin and will deliver investors a nice bit of income. There should be no surprises with this fund.’

Although the political backdrop is never far from his mind, Murphy says he will not compromise the fund by setting it up for specific outcomes – a Labour victory, for example, or Boris Johnson triumphing. But he believes many of the fund’s holdings will do well irrespective of the politics. He says firms such as brick manufacturer Ibstock, a key stake, should continue to thrive due to the overwhelming need to build more houses, while retailer DFS will probably dominate the furniture market as it does today.

Murphy’s no-nonsense approach has served him and investors well over the years. The recent financial numbers are more than respectable. Over the past five years, the fund has outperformed its peer group and its benchmark (the FTSE All Share Index), providing investors with a total return of 39 per cent.

It’s also generating an attractive income equivalent to 4.6 per cent a year – with dividends paid every six months. The fund has little or no exposure to some of the market’s ‘mega’ cap stocks – such as Diageo, AstraZeneca, HSBC and Shell – because he believes he can find better dividend yield elsewhere.

It is currently invested across 52 companies, with nearly 30 per cent of the assets invested in financial companies – including Intermediate Capital Group, Phoenix and St James’s Place. In terms of holdings by market capitalisation, some 60 per cent is in FTSE 100-listed companies with the rest primarily in FTSE 250 stocks. Only five per cent is in UK ‘small’ caps.

While the dividend outlook for the UK stock market is more challenging than it has been, Murphy is confident he can keep income payments to investors growing. He says: ‘I am constantly looking to buy companies that have strong balance sheets and sustainable businesses.’

He also believes that if there is certainty on Brexit in the coming months, it will be good news for the UK stock market. He adds: ‘Many investors have given up on UK equities but the stock market is undervalued compared to other equity markets. A resolution of Brexit could change all that.’

The fund’s ongoing charge is one per cent and Murphy is assisted by James Balfour who has worked on Equity Income for the past three years.