How concerned should investors be about dividend concentration risk?

Funds relying on top ten holdings

Fund managers have defended their UK equity income funds against criticism they are too reliant on a small group of companies to pay a large proportion of dividends, arguing they are backing names they believe can generate sustainable, growing income streams over time.

According to data from Morningstar, a number of funds sitting in the Investment Association's UK Equity Income sector are dependent on their top ten, or even top five positions, for the bulk of payouts.  The data showed 15 funds from the 79 funds analysed within the sector derived over 50% of their yields from their top ten holdings in the 12 months to the end of February 2017. These include well-known players such as the £10bn Woodford Equity Income fund, the £2.9bn JOHCM UK Equity Income fund, and the £2.3bn Jupiter Income Trust. Meanwhile, about 25 names generated 40%-50% of the...