- Do equity income funds pervert capital allocation decisions?
- Or is good capital allocation in the interests of equity income funds as much as anyone else?
A strong dividend record can be the marker of a really great company. It can point to a business that is conservatively run, cash-generative, growing and well-financed. In particular, dividends can be a sign that management avoids taking big risks with shareholders’ money.
However, a potentially darker side of dividends has recently been getting increased attention. The perceived problem is associated with the powerful presence of equity income funds in the UK market. A type of fund described recently by Marshall Wace founder Paul Marshall in the Financial Times, as “the UK fund management sector’s [peculiar and farcical] signature dish”.