For use by financial advisers and investment professionals only. Not for use with customers.
The Aviva Investors UK Equity Income Fund
The strength to net sector beating performance
Thinking ahead in turbulent markets
We believe that current market conditions could offer some Why this could be a good time to invest
very attractive opportunities in UK equities. Offering an in an equity income fund
unusually high level of long-term value, they also provide The implied yields from UK government bonds, and interest
higher levels of income than have been seen for some time. rates on savings accounts, have fallen significantly over recent
The Aviva Investors UK Equity Income Fund aims to deliver months. By contrast, the overall yield offered by the UK equity
consistent long-term returns together with an attractive market has increased significantly. This offers investors a
income. This is achieved by allocating capital across a broad strong yield premium – with the opportunity to access equity
range of sectors and individual stocks which show strong markets when share prices are at what may prove to be
and sustainable yields. historically very attractive levels. Please be aware that the
opinions expressed by Aviva Investors should not be relied
The Fund is managed by Dan Roberts, a rising star in the
upon to inform investment decisions.
income sector. This year marked his third anniversary in
charge; his disciplined investment approach has delivered The Aviva Investors UK Equity Income Fund aims to provide investors
outstanding performance relative to other income managers with stable income and long-term capital growth. It is based around
in the UK equity market. Past performance is not a guide to the idea that rigorous research and analysis can enable us to find
the future. value in the market which other investors may overlook.
The Aviva Investors UK Equity Income Fund is suitable for a This contrarian approach extends to the way we view the market
wide range of clients who are looking to take a share of the as a whole, as well as to how we see individual stocks. So, at a
proceeds of long-term economic growth, who can afford to time when many investors are holding back from equities, we
leave their money invested for five years or longer, and who prefer to remain objective – and ask if significant opportunities
are happy with moderate risk. The value of their investment are being overlooked.
can fluctuate and they may not get back what they
originally invested.
Aviva Investors
1
Low levels of volatility Equity investment over the long term –
Clearly, volatility in equity markets has increased during 2008. a consistent story
However, given the cyclical nature of markets, and the relatively The long-term perspective shows that equities have delivered
low levels of volatility experienced over recent years, this is not superior returns for investors who remain in the market. While
surprising. Times of high volatility have occurred many times in the value of equities will naturally fluctuate, investors in stocks
the past, and will happen again in the future. Some periods, like and shares have historically seen better returns over the long
the current one, are more volatile than others; but we would term than investors in bank or building society savings accounts.
argue that this gives active fund managers an attractive stock Cash deposited in bank and building society accounts is more
picking background, with the proviso that volatility is controlled secure and there is little risk to the initial capital.
and minimised.
Empirical evidence also shows that shares offering high yields
The Aviva Investors UK Equity Income Fund limits volatility by – such as those selected for the Aviva Investors Equity Income
spreading risk through an exposure to a wide range of stocks Fund – deliver superior returns over the long term. In fact,
and sectors. In practice, it has indeed demonstrated relatively dividend yield and dividend growth form the main component
low levels of volatility – while delivering good performance of the total return.
relative to other income managers.
This is precisely why the Fund focuses on high and sustainable
Of course, it is important to remember that investing in equities yields to potentially generate strong long-term gains from
should be considered a medium to long-term investment, equity markets.
and that past performance is not a guide to the future. Where
clients cannot leave their money invested for an extended
period, bank or building society savings accounts may prove
a more suitable option.
UK Equity Income Fund
2
Key facts about the Aviva
Investors UK Equity Income Fund
1 Respected and experienced Fund Manager 4 Performance
Dan Roberts has been the lead manager of the The Fund has been one of the top performers in the IMA Income
Fund since August 2005, while also playing a key sector consistently over recent years, and has delivered real
role in Aviva Investors’ wider UK equity team. He growth in distributions. The Fund remains true to its ‘income’
has full discretion over the construction of the label, maintaining a disciplined approach that has a consistent
portfolio, while drawing on complementary skills and investment focus on yield. The fund manager will not compromise the
styles from across the team. His ultimate goal is to identify high Fund’s approach, to chase short-term trends or fads in the
conviction ideas with strong performance potential, and deliver market – and so we believe this Fund will typically demonstrate
these in a concentrated, best ideas portfolio. Dan’s outstanding a lower level of volatility than many other equity funds. Past
track record has recently earned him an ‘AA’ rating from Citywire1. performance is not a guide to the future.
The Fund has delivered outstanding performance relative to its
2 A disciplined investment approach
peer group. The third year anniversary under Dan’s stewardship
The Fund takes a highly disciplined, consistent approach towards (August 2008) yielded top quartile performance over the period.
stock selection and portfolio monitoring in order to achieve its The Fund has continued to go from strength to strength –
income targets. We focus on comparing a company’s present ranking 10th percentile over the past one, three and five years
valuation with its long-term history, and future potential. Clearly, (Lipper/Hindsight as at 30 November 2008). Past performance is
income considerations play an important role – but we must not a guide to the future.
always believe that dividends can be sustained, and are
What are the risks?
supported by solid business models. The fund management
team takes a ‘contrarian’ approach: seeking out investments • Your clients should remember that, unlike a bank or building
where they see value, where the general market does not. society savings account where initial capital is more secure,
the value of an investment in equities can go down as well as
3 Investing with focus and conviction up and is not guaranteed. Your clients may not get back what
they put in
To generate superior returns and achieve high long-term growth,
managers need the conviction to back their best ideas with • The amount your clients get back from their investment is not
appropriate levels of investment. That’s why the Aviva Investors guaranteed. It will depend on investment performance
UK Equity Income Fund is a concentrated but diversified
• Charges may increase in the future
portfolio – holding around 45-60 of the portfolio managers’ best
stock ideas. While aiming for attractive and sustainable income • Legislation and tax rules may change in the future
distributions, the overall portfolio selection is made with a clear
• Inflation will reduce the buying power of your clients’ money
focus on diversifying investment risks.
• Funds which invest in equities can provide high returns over
the medium to long term, but such returns will be subject to
greater rises and falls than investing in lower-risks assets
• We take some or all of the Annual Management Charge from
capital. Because of this, your clients’ capital may be reduced
Source: Citywire as at 28 November 2008.
1
over time if the Fund’s growth does not compensate for it.
Also, any capital growth the Fund produces will be reduced by
the charge.
Aviva Investors
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Conviction leads to
strong performance
As the tables below show, the Aviva Investors UK Equity Income Fund is constructed from our fund
management team’s best ideas, not to follow the crowd or reflect the benchmarks.
Top 10 Overweights
Cumulative performance
Holding Value Portfolio Benchmark Industry
90 40 weight weight comparison
IMA UK Equity Income* IMA UK Equity Income
80
Aviva Investors UK Equity Income BT Group PLC 30 Aviva
3.82%Investors UK Equity Income
0.88% 2.94%
70 20
Pearson PLC 3.35% 0.42% 2.93%
60
10
National Grid PLC 4.31% 1.40% 2.91%
Percent
50
AstraZeneca PLC0 5.90% 3.01% 2.89%
40
-10
Vodafone Group PLC 8.48% 5.64% 2.84%
30
20 RSA Insurance -20
10 Group PLC -30 3.20% 0.43% 2.77%
0 Wm. Morrison-40
2003 2004 2005 2006 2007 2008 Supermarkets PLC 6 mths 1 Year
2.68% 2 Years 3 Years 4 Years
0.55% 2.13% 5 Years
Year
Rolls-Royce Group PLC 2.45% 0.48% 1.97%
*Source: Lipper/Hindsight. Performance figures are on a total return basis, Tesco PLC 3.88% 1.96% 1.92%
no initial charge, net of tax, income reinvested to 30 November 2008.
Figures don’t include effects of the initial charge and any redemption fees.
GlaxoSmithKline PLC 6.67% 4.95% 1.72%
As at 30 November 2008.
Percentile ranking1
Sector Splits
6mth 1yr 2yr 3yr 4yr 5yr
Sector Portfolio Benchmark Industry
12 9 12 10 11 10 weight weight comparison
Consumer Services 14.72% 9.25% 5.48%
Fund facts Telecommunications 12.30% 7.04% 5.26%
Health Care 12.57% 9.01% 3.56%
• Yield 6.1%2 Utilities 7.54% 5.16% 2.38%
• Superior yield supporting real growth in Technology 2.18% 1.02% 1.16%
distributions
Industrials 6.51% 6.59% -0.08%
• The Fund ranks in the top 10% of its sector over
Consumer Goods 11.78% 12.19% -0.41%
1, 3 and 5 years
Basic Materials 2.91% 6.94% -4.03%
• Well diversified portfolio with ‘true to label’
focus on income Financials 14.84% 21.34% -6.50%
• High rated fund manager3 – Citywire ‘AA’ rating3 Oil & Gas 14.65% 21.46% -6.81%
Total 100.00% 100.00% –
Financial Express Crown Rating As at 30 November 2008.
Sector splits can change at any time.
Past performance is not a guide to future performance.
1
Source: Lipper/Hindsight as at 30 November 2008.
2
This is a historic yield calculation at 30 November 2008. The historic yield reflects distributions declared over the past 12 months as a percentage of the
mid-market unit price, as at 30 November 2008. It does not include initial charges and investors may be subject to further tax on their distributions.
The Fund’s expenses are charged to capital. This has the effect of increasing the distributions for the year by 1.51% and constraining the Fund’s capital
performance to an equivalent extent.
3
Source: Citywire, Standard & Poor’s, Morningstar and Financial Express as at 30 November 2008.
UK Equity Income Fund
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Jumping onto the companies
with potential
The portfolio is focused on companies with potential for attractive capital return
that is combined with sustainable, above-market yields. This results in a concentrated,
high conviction portfolio of typically 45-60 stocks.
The size of individual stock positions is determined by a combination Aviva Investors UK Equity Income
of the manager’s conviction, the risk profile of the company, and the Fund Manager: Dan Roberts
yield consideration of the overall portfolio. Stocks take the lead over Dan Roberts took over as lead manager on
sectors in making the selection; sector positions are driven by the Aviva Investors UK Equity Income Fund in
bottom-up stock preferences. August 2005, having previously worked on
the Fund as the deputy fund manager. Before
joining us, he worked as a UK Institutional
Equity fund manager at Invesco, and as an
equity analyst at M&G. Dan is a member of
the Institute of Chartered Accountants, the Association for
Investment Management and Research, and the UK Society of
Investment Professionals.
Aviva Investors
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Aviva Investors UK Equity Income The Fund was also early to see the danger in banking
Fund in action: banks, miners, and Fund shares, running significantly underweight from early
outperformance in 2008 2007. Again, this view was based on our analysis of the
Over the past year, there were two key calls for any active sustainability of returns – and prescient fears about
equity manager – the banks and the miners. how heavily banks were leveraged to the US sub-prime
housing collapse.
First, the miners. Dan Roberts took a contrarian and high
conviction stance, holding zero allocations in this sector as As well as revealing areas to avoid, our research and analysis
we entered 2008. He believed that returns in this sector also pinpoints positive opportunity. The Fund’s strong
were unsustainable in an environment of slowing growth performance picture has been helped by early exposure to
and rising costs – especially in the context of long-term areas of the market with strong cash flow and less
cycle averages. economically sensitive earnings – including pharmaceuticals,
media and utilities.
Of course, Dan’s views were questioned early in 2008,
when the share prices of many miners were inflated by
huge waves of speculative cash. But our position was based
on the conviction brought by rigorous research; and, as the
year advanced, the Fund delivered strong relative
performance as miners tumbled on global recession fears
and rising risk aversion from investors.
UK Equity Income Fund
6
Invest with a strong team
Aviva Investors is a global asset management business dedicated to providing our
clients with focused investment solutions.
We are wholly owned by Aviva plc, the world’s fifth largest The company is now a strong global player, formed from the
insurance group, which currently manages over £350 billion* combination of such well known names as Morley in the UK;
across virtually every investment class. Our client base ranges Aviva Gestion d’Actifs in France; Portfolio Partners in Australia;
from among the largest financial institutions to individuals Aviva Capital in the US; and Hibernian Investment Managers
investing for the future. in Ireland.
Aviva Investors is also a strong business in its own right. Take The size and strength of a company may vary over time and is
a look at the numbers: today, we employ more than 1,200 not guaranteed. *Source: Aviva as at 30 June 2008.
people, including some 390 investment professionals, based in Based on gross worldwide premiums for the year ended
21 locations across the UK and worldwide†. Our clients benefit 31 December 2007. †As at 30 September 2008.
not only from our unique knowledge of our local markets,
A highly experienced UK equity team
but also from our ability to use the leverage that global
recognition brings. Our UK equity team combines the expertise of eight highly
talented and experienced fund managers, with an average of
16 years’ investment experience.
Aviva Investors
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The team works closely together, combining a common Quantitative underpinning
investment philosophy with the freedom to use individual flair The first step is to use our bespoke screening tool to check a
and insight. This gives us the ideal environment in which to variety of historical factors including valuation, operational and
identify the best stock opportunities across the UK market. sentiment data for all companies within the investment universe
Aviva’s size, making us one of the largest investors in the (FTSE All Share). This helps the fund manager pick out initial
market, means that our team can gain access to the senior investment candidates for further detailed research.
management of companies. This gives us an added edge in
uncovering value that others may overlook. It also allows us to Fundamental research
take an active role in aligning shareholder interest, at the Once these potential investment candidates are identified,
strategic company level. we then subject them to rigorous fundamental analysis. This
examines aspects such as the quality of management team,
Investing based on rigorous research and process
industry landscape, competitive environment, sustainability
The UK Equity Income Fund portfolio is built using a disciplined of returns across cycles, and balance sheet strength.
and consistent, bottom-up approach. We adopt a total return
mentality, and employ a contrarian style (investing in companies We look for companies trading at fair value or below, which we
which the market deems unfashionable or out of favour) also judge to offer sustainable yields going forward. We assess
to seek out undervalued companies with above-market, this through a detailed and comprehensive valuation analysis.
sustainable yields. Impressive as that may seem, however, it’s just the beginning
of the resource we can draw on.
UK Equity Income Fund
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The strength of our group
Our parent, Aviva group, has 57,000 employees and operates in 27 countries worldwide.
Being part of a group of this size brings our investors many benefits.
• It provides us with significant resources, giving us the scale
and the scope to identify high potential areas and plan for the
longer term
• It means we can develop leading edge IT systems and proprietary
research tools, which we believe give us a significant edge over
less well-resourced competitors
• It also lets us benefit from the world class risk management
systems Aviva group has developed – which we believe gives our
investors a vital layer of extra wealth protection during times of
market volatility.
Aviva Investors
How to find out more
For more information about our UK Equity
Income Fund, and how the strength of Aviva
Investors can work for your clients, call us today
on 0800 015 4773*
Alternatively, visit our website at
www.avivainvestors.co.uk/uk
*Telephone calls may be recorded for training and monitoring purposes.
Calls are free from a BT landline. Call charges may vary from mobiles and other networks.
Aviva Investors is a business name of Aviva Investors UK Funds Limited, the ISA Manager and Aviva Investors UK Fund Services Limited,
the Authorised Fund Manager. Registered in England Nos. 2503054 and 1973412 respectively.
Authorised and regulated by the Financial Services Authority.
Registered addresses: No. 1 Poultry, London EC2R 8EJ. Both are Aviva companies.
www.avivainvestors.co.uk
CI06552 01/2009