Frikkee: Beware UK equity income funds' volatility profiles

ON UK INCOME

Many UK equity income funds now have volatility profiles more akin to a growth portfolio, according to Smith & Williamson's Tineke Frikeee.

We feel positive about the UK equity income sector for 2014 with its gearing into rising GDP growth cushioned by an above average 4% dividend yield and below average volatility compared to growth funds. Equities are likely to be supported by rising global GDP growth (IMF: +3.7% in 2014 versus +3% in 2013), driven by the US, UK, and Europe. Corporate balance sheets are generally strong and with low borrowing rates, we may well see more M&A in 2014. However, there are also headwinds to be mindful of. Disappointing corporate earnings are likely to lead to more pronounced share price fall...