Why this top-performing income fund is different from the rest

A solid performer over the past five years, Aviva UK Equity Income manager James Balfour explains to Lee Wild how he runs his fund and what stocks need to make it into the portfolio. 

What is the fund's dividend objective and how do you achieve it?

The objective of the fund is to deliver a dividend above that of the FTSE All-Share Index. 

This is achieved through building a portfolio of steady, consistent yielding companies that we see consistent growth in that distribution, and actually being able to build a portfolio that doesn't have a barbell approach and every company is contributing towards that yield, which we believe over time will deliver the yield above that of the index.

Other than attractive yield, what does a stock need to make your portfolio?

The yield isn't the starting point, a yield should be an outcome for all companies.  Therefore, we're looking for high quality companies that generate cash and are able to continue to invest in their business.  

If they're able to produce a yield at the end of that, that's great, and they can return that cash to shareholders.  So, we are fundamentally looking for the good companies in the market that we see growth and continued growth going forward in all market conditions, and that should deliver a continuing growing yield.

What makes you different from other income funds?

We believe we deliver low volatility of returns and that, over time, delivers a consistent return to our shareholders and clients.  

That is driven by making sure that we have embed high quality companies that generate cash and compound that over time, and that their returns should be high and have barriers to entry to prevent entrance into their market.

We embed an ESG [environmental, social and governance] culture into our investments to make sure that companies where they're investing today can continue to do that in the future because they're making the right decisions now.

How has your fund performed over the last few years relative to objectives and peer group? 

The fund has delivered a yield ahead of the FTSE All-Share over the last five years.  In the same period, it has delivered returns above that of the index.  

Also, compared to peers, it has delivered over three and five years second quartile performance, which we believe is consistent and will continue.

What other funds does the Aviva team currently manage?

We have investment teams across the UK, Europe, [emerging markets] and global, and have been building out these teams over the last nine months to continue delivering services to our clients.

Over the coming period, we look to expect to build and expand upon these, and will continue to deliver services for our clients, embedding an active and fundamental analysis with ESG embedded into those funds.

This interview was recorded on 21 September 2018 and can be viewed in full here.