The best and worst UK equity income funds revealed
Sanlam UK’s income study has run for 30 years, ranking funds based on performance in the last six months. It analyses absolute income generated over the past five calendar years, capital growth for each of the past five 12-month periods and volatility over the past five years.
The results are split into three categories:
- The White List: a select group of funds that have established their ability over five years to produce superior total returns.
- The Grey List: can be seen as a temporary home for a manager with an out-of-favour style or an early warning signal for a fund in decline.
- The Black List: is for consistent underperformers and may suggest it’s a sign for investors to look elsewhere.
The White List
CF Miton UK Multi Cap Income, run by Gervais Williams and Martin Turner, has kept its position at the top, through a combination of consistently strong returns, low volatility and maintaining a high income pay-out.
Slater Income has moved into second place and MI Chelverton UK Equity Income, run by David Taylor and David Horner, comes third, moving from the bottom of the White List. Sanlam said this is due to strong performance over the past year along with their continued high income distribution levels.
Marlborough Multi Cap Income and Majedie UK Income, placed fourth and fifth, have also continued their upward movement. These funds have a high income pay-out and strong consistent performance versus peers.
Unicorn UK Income, run by Fraser Mackersie and Simon Moon, has a small cap bias and like many others was impacted significantly by the UK referendum last year. However, the team have posted excellent returns since the shock result.
The Grey List
In previous studies, all three Threadneedle funds have consistently ranked highly. But after the Threadneedle UK Monthly Income exited the White List in the last study, Threadneedle UK Equity Alpha Income followed suit, falling 15 places. The third fund, Threadneedle UK Equity Income, still retains its position in the White List.
Although it moved into the White List in the last study, Schroder Income Maximiser, run by Kevin Murphy and Nick Kirrage, now ranks seventh on the Grey List. Despite being the highest climber in the January 2017 study, those gains appear to have unwound. Performance hasn’t been as strong but it still ranks first for dividend income provided in the past five years.
Man GLG UK Income has moved up 32 places from the Black List to almost top of the Grey List. The fund has posted exceptional performance and its small/mid cap bias has served it well.
Colin Morton’s Franklin UK Equity Income has dropped out of the White List into the Grey List as the income provided in the past five years has been lower than its peers and it recorded poorer performance than the sector average.
Troy Trojan Income, run by Francis Brooke, also continues to fall – 16 places to number 21 on the Grey List. Sanlam said its quality style bias has continued to impact upon performance, and the amount of income the fund has provided over the past five years has continued to lag.
Schroder Income and Rathbone Income funds have benefited from the Investment Association’s (IA) relaxation of the yield hurdle (from 110% to 100% in April 2017) and have been added to the universe for this study, after successfully applying for entry into the IA UK Equity Income sector. The third new entrant, Invesco Perpetual Income & Growth, has, however, entered directly into the Black List.
The Black List
Sanlam notes there has been little change in the lower rankings of the Black List, with the last few funds being the usual perpetrators. Although Scottish Widows UK Equity Income has ranked last for some time the HSBC Income fund has now fallen to the bottom of the list; performance and the fund’s yield have continued to be poor.
The greatest faller in the study is Newton UK Income which has dropped, from the Grey List, 24 places into the Black List. In the previous study it moved out of the White List and has since struggled in terms of performance and its dividend pay-out level.
Phil Smeaton, CIO of Sanlam UK, said: “Investors willing to look at historical and longer-term fundamentals of the market will reap the rewards of a high and diversified income stream. This provides an attractive option for investors who are prepared to expose their capital to stock market risk.
“The IA’s decision to amend the requirements for a fund to enter the UK Equity Income sector is shaping the equity landscape, and has the potential to impact investors looking for income in the future. While funds have greater flexibility, there is a limited pool of stocks available, and investors therefore need to ensure they have the right blend of funds to make sure they are diversified.”