The Newton Higher Income Fund has been removed from the Hargreaves Lansdown Wealth 150 fund buy-list after concerns over its capital growth.
The fund was dropped from the buy-list despite being one of the highest yielding funds in the UK equity income sector.
Managed by Tineke Frikkee invests in high-yielding UK companies and some special cum-dividends and covered call options to enhance income.
The fund had increased its exposure to cum-dividends and covered call options following the suspension of BP’s dividend.
Ben Yearsley, investment manager at Hargreaves Lansdown, said, ‘The use of these strategies can enhance the income but, in certain circumstances, can also constrain the capital growth.’
At the time of BP’s suspension the oil giant had accounted for one seventh of all dividends in the UK and made up 8 per cent of the fund.
Patel added, ‘We were comfortable with the use of these strategies when they made up a small part of the fund.
‘While we do not expect their use to remain high, we have some short term concerns. The increased use has driven up the yield and we feel this could potentially affect the fund’s capital growth.’
She said the decision was not a recommendation to sell and represented a good option for those who prioritise a high level of yield. However, for investors looking for lower yield and fewer constraints on capital growth other funds remained.
‘BP is likely to resume its dividend in the first six months of next year, and we expect to see the use of these strategies reduce in the meantime,’ said Patel.
The firm has also recently removed the Lazard Emerging Markets fund from the Wealth 150 after it closed to new investment.