Study of UK equity income funds reveals consistent outperformers and underperformers
The Slater Income fund has been ranked the top-performing UK equity income fund in the latest Sanlam Income report. Consistent performance, moderate volatility and a high dividend yield have put the fund to the top of Sanlam’s White List.
The twice-yearly Sanlam UK Income Study roots out the best funds in the UK equity income sector, as well as those investors should avoid.
Funds are allocated to the white, grey or black list depending on their performance. The white list comprises those funds which have produced superior returns over a five-year period, while the black list indicates funds which have consistently underperformed.
As well as total return over five years, the study also takes into account performance over each discrete 12-month period, and volatility.
Also ranked among the top equity income funds is Miton UK Multi Cap Income, which has returned 78.1 per cent over the past five years and yields just over 4 per cent. It ranked third in the latest edition of the report.
Artemis Income has climbed from 30th place in the rankings a year ago to fourth today, and Schroder Income Maximiser has moved up 18 places.
Also on the white list are the Schroder Income, Aviva Investors UK Equity Income, Miton Income and Insight Equity Income Booster funds.
Samuel Meakin, analyst at Morningstar, says: ‘After a period of lacklustre returns we have seen Artemis Income return to form. Schroder Income has a value-driven approach and this, combined with the managers’ long-term outlook, can result in performance which is generally more volatile.’
At the other end of the spectrum, Invesco Perpetual Income & Growth, M&G Dividend, HSBC Income and Aberdeen UK Equity Income funds are all listed on the black list of funds which may require investors to take action.
Unicorn UK Income has dropped from the white list into the black after stock-specific issues have hit performance over the past year. Schroder UK Alpha Income and Fidelity Enhanced Income funds have also found themselves on the list of underperformers after poor returns in recent months.
Meakin says: ‘Of the funds lower down the list, the Franklin UK Equity Income fund is one we rate highly. Colin Morton’s long tenure – on the fund since 1995 – has provided stability and consistency for investors.’
The UK equity income sector has been out of favour with investors who are concerned about the potential impact of Brexit on the UK economy. The sector has suffered huge outflows in recent months, with investors pulling £300 million out of these funds in May alone.
But Philip Smeaton, chief investment officer at Sanlam UK, says the strength of the funds on the white list shows there are still opportunities to be found in the sector.
He says: ‘The sector remains an attractive place for those seeking an income from their investments. Fund managers who appear in the white list are adept at taking advantage of a volatile corporate and economic environment.
‘Markets will accommodate both the Brexit outcome and interest rate rises in the coming years. And in the meantime, UK equity income funds are likely to remain a favoured source of income, the level of which is unavailable elsewhere.’