It’s an old adage that Blighty is the best place to go for dividend yield, but in a world of higher interest rates this conventional wisdom is ripe for questioning.

We’ve caught wind that City Asset Management have called time on Martin Currie UK Equity Income and with it their entire exposure to UK equity income as a whole.

Our recent chat with chief investment officer James Calder revealed the reason why: bond managers are now providing attractive levels of yield at a lower risk profile than stocks. 

“Our clients require a healthy level of yield from their investments – bonds now provide that,” he said. 

“When you were in a zero interest rate environment, it was giving you a very, very chunky level of yield. Now that game is over, if you take the view as we do, that whilst rates are going to come down, they're not going back down to zero.”

Fair enough. 

The proceeds are headed in the direction of a FTSE 100 tracker so their equity allocation provides growth unimpeded by a yield goal, Calder said.

He stressed that the decision was nothing to do with the Martin Currie fund in itself, which they still regard as the ‘go-to’ team in the UK equity income space. 

But they are not the only allocator to have pulled away from this mandate over the past year. 

In April, Marlborough swapped around their source of equity yield, dropping Martin Currie UK Equity Income for Man GLG Income. 

At the time we speculated whether this was a performance-related decision – the Martin Currie mandate was lagging in the bottom quartile over the past year, while its replacement was in the top quartile. 

The fund also holds a decent exposure to mid and small-caps, which have endured a rockier road than most over the last couple of years.

Indeed since the turn of the year, five allocators have called it quits.

Investors in aggregate have pulled more than £220mn from the fund since December 2023, though it remains £850mn in size, according to Morningstar Direct data. 

Indeed the attraction of fixed income has certainly risen over the last few years, leaving Asset Allocator to ponder the direction of travel for the asset class since the Fed finally got around to cutting interest rates last week. 

We wrote that the intuitive trade in this environment is perhaps to own long-duration bonds and shun the short end of the curve. These conditions will, in theory, benefit government bonds, while high yield and linkers may suffer.

You can read more about fixed income from us here.