Fund of the week: Why I'm optimistic on 2010

With interest rates at record lows, decent returns on your money are getting harder to come by. So a new study on the funds best placed to provide a rising income and capital growth is welcome.

The bi-annual Principal Investment Management study has identified 14 income funds with the best potential in 2010. Top of the list comes the Artemis Income Fund. Managed by Adrian Frost, it has a net dividend yield of 4.6% and is up 131.4% since launch in June 2000.

Although the fund has holdings in some international stocks, such as the Dutch phone group Koninklijke KPN and American pharmaceutical giant Merck, most of the portfolio is concentrated in Britain. And that's probably no surprise, given Frost's relatively bullish outlook for the economy.

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After selling his holding in Diageo late last year, he added to holdings in Imperial Tobacco, G4, Close and William Hill. He thinks the 'end of the worldists' may be confounded by better-than-expected data in 2010. "Firms may have allowed the gap between supply and demand to become too great," he tells FT Adviser. "In general, firms have produced better profits, more cash flow and lower borrowings than expected."

Indeed, even a bit of good news would be enough to give sterling a boost. "Show me somebody who thinks otherwise. This is where the money is. Only a few experts tell me the economy could be better than feared, unemployment less severe and government borrowing lower than forecast", he adds on Citywire. Thus if the few optimists currently around "turn out to be even half-right, then sterling will rally sharply, given that everyone is positioned the other way".

Contact: 0800-0922 051.

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Artemis Income Fund top ten holdings