BEST LARGER FUND
Man GLG UK Income
1-year return: 12.8% | 3-year return: 34.4%
Man GLG UK Income scoops the Best Larger UK Equity Income fund crown, thanks to its consistently strong performance under manager Henry Dixon. It is in the top quartile of its sector over the past one and three years to the end of March 2018, and is also a new entry to Money Observer Rated Funds this year.
Dixon took over management of this fund in November 2013 shortly after joining Man GLG. Having made his name running non-income focused funds, he applies the same disciplined, value-focused approach and has produced exceptional outperformance in the shorter term despite his style being out of favour. He runs a multi-size portfolio with a distinct bias towards small UK dividend- payers, an area in which he excels and where he has generated recent outperformance .
The portfolio had 35 per cent of its £561 million of assets in mid and smaller companies at the end of April. Man GLG UK Income aims to achieve a level of income above the FTSE All-Share index and is easily achieving this, yielding 4.7 per cent compared to 3.7 per cent for the index.
Dixon can hold European stocks when they are materially cheaper than UK peers, and bonds when his team’s analysis of the capital structure suggests more attractive capital upside and income potential in a company’s bonds than in its equities. The combined allocation to European stocks and credit is limited to 20 per cent and holdings have remained comfortably below this level during his tenure.
BEST SMALLER FUND
JPMorgan UK Strategic Equity Income
1-year return: 3.4% | 3-year return: 21.1%
JPMorgan UK Strategic Equity Income is this year’s Best Smaller UK Equity Income fund. The £119 million fund aims to provide income and capital growth over the long term by taking a value oriented approach to investing.
Lead manager Ian Butler and co-manager Thomas Buckingham are part of JPMorgan Asset Management’s London-based international behavioural finance team, and have particular strengths in value and income investing respectively. They seek fundamentally sound companies trading below their estimated value, especially where they can see a catalyst for the share price to rise. They own many of the stocks traditionally seen in equity income funds, such as oil major Royal Dutch Shell, pharmaceuticals giant GlaxoSmithKline and banking giant HSBC.
They view the fund as a good fit for investors seeking income and growth from a standalone equity investment primarily comprising UK companies. The pair’s biggest overweight is to the financial sector. Although financial stocks have performed well over the past year, they believe there is still further upside, with the sector benefiting from a number of positive trends including much improved balance sheets, rising profitability as economies accelerate and interest rates move higher, and more ability to return capital to shareholders in the form of dividends and buybacks. They believe valuations are sensible for the most part, even after recent gains. The fund is yielding a reasonable 3.1 per cent at present.
HIGHLY COMMENDED LARGER FUND
AXA Framlington Monthly Income
1-year return: 4.3% | 3-year return: 23.7%
AXA Framlington Monthly Income is our Highly Commended Larger UK Equity Income fund. It is also a newcomer to our Rated Funds this year. It is yielding 4.4 per cent. Paying a monthly income, it is well-suited to those looking for a regular income stream from their investments to meet living expenses. George Luckraft, its manager since 2002, pioneered the ‘barbell’ strategy, combining traditional highyielding equities with lower-yielding growth stocks.
The £362 million portfolio is built around large international companies paying a high yield – Royal Dutch Shell, BP and British American Tobacco are its largest holdings. Luckraft focuses on the leaders within sectors. He balances these with fast-growing smaller companies. One quarter of the fund is in Alternative Investment Market shares.
HIGHLY COMMENDED SMALLER FUND
Franklin UK Rising Dividends
1-year return: 0.4% | 3-year return: 22.3%
The winner of Best Smaller UK Equity Income fund in 2015 and 2017, Franklin UK Rising Dividends is highly commended in this category for 2018 at the same time as making its entrance to our line-up of Rated Funds. Manager Colin Morton continues to produce consistently strong performance, though the fund has very marginally underperformed its peers over the past year.
This is a relatively concentrated portfolio of 40 names that aims to beat the FTSE All-Share index over the long term by investing in businesses that can consistently grow their dividends. This focus on rising dividends means that Morton can opt for lower- yielding stocks that have the potential to grow their payouts above the average over the long term. He looks for financially sound firms with strong management teams. He focuses on those that have increased their dividend payouts in at least eight out of the last 10 years and have not cut the dividend at all over that period. The £69 million fund is yielding 3.5 per cent.