Artemis Income Income Units

We expect interest rates to fall to 1% next year and if so they will be the lowest since records began in 1694!

Savers may soon find the return on their cash is the worst ever seen. Money in the bank is guaranteed, but such low rates will leave its value vulnerable over time to the ravages of inflation. Equity income is one of the few investments that can provide part of the solution. It has the potential to grow both your capital and the income you receive, but unlike cash its value can fall as well as rise.

Equity income funds pay their income out of accumulated share dividends, and by investing in companies paying them consistently. Dividends have formed the bulk of investment returns over the long term. For example, £10,000 invested in the UK stock market 20 years ago would now be worth £21,900 without dividends, but that would have more than doubled to £45,476 if dividends were reinvested.

Stock markets have fallen a long way, but we believe equity income funds could be among the biggest winners when markets recover. A consistent dividend is a sign of a healthy business and equity income funds invest in some of the most established names in the UK. Many struggling companies will cut their dividend, but the highest quality will maintain (and may even increase) their payouts to shareholders. Not only will such shares pay an attractive income, but they should gradually command a premium as private and institutional investors alike search for better returns. Finding those companies is not easy, so the key is to invest with the best fund managers.

The Artemis Income Fund stands out from the crowd. Its flexible mandate allows its managers, Adrian Frost and Adrian Gosden, the freedom to diversify across different sectors. They have shown a remarkable ability to outperform their peers. Their focus is on generating a good total return (capital growth plus dividends) for their investors while growing the income over the long term.

The fund has been extremely successful in generating a growing income, although remember that past performance is not a guide to future returns. The fund managers look to invest in attractivelyvalued companies with plenty of cash flow. To them cash is vital because it gives a company the freedom to maintain dividend payments, and even increase them over the years.

The first funds we ever highlighted to our clients were UK equity income funds and the sector has been a firm favourite ever since. We believe it can be a superb area for investors who want income, capital growth or a combination of the two. Recent market falls serve as a reminder that stock markets are volatile, but we believe that when markets start to recover equity income funds will lead the charge. In the meantime you should receive a healthy level of income for your patience.