Jeremy Lang and William Pattison’s Ardevora UK Income fund has been absorbed by the River and Mercantile UK Equity Income fund, run by Dan Hanbury, after a torrid several years in which it saw 92% of its assets wiped.
River and Mercantile confirmed on Thursday that the merger, which was approved by shareholders at the end of March, had completed with Hanbury’s £143.7m fund hoovering up Ardevora UK Income’s £6m worth of assets.
Equity Trustees Fund Services, which is the authorised corporate director for both funds, wrote to shareholders in March that it was in their best long-term interest to merge Lang (pictured) and Pattison’s floundering UK equity income fund with Hanbury’s portfolio.
Ardevora UK Income had seen assets dwindle
Lang and Pattison’s fund had been bleeding cash over the past several years.
The fund had steadily grown from £10.8m at launch in April 2012 to £78m by the end of 2016. But four months after peaking at £83m in May 2017, assets in the fund had nearly halved to £43.8m, according to data from Morningstar, and by the end of the year were down to £31m.
Assets in the fund kept dwindling, slumping to £12m in 2018, £9.5m in 2019 and finally £6.2m in 2020.
Like all UK equity income funds, Lang and Pattison’s fund was left badly bruised by the coronavirus crisis which saw dividend payouts crash 44% to £61.9bn in 2020. It was one of the bottom yielding funds 12 months on from the start of the Covid downturn in February 2020, yielding just 2.45%.
See also: Which UK equity income funds saw yields shrivel during the coronavirus pandemic?
Cross-over between two portfolios is minimal
AJ Bell head of active portfolios Ryan Hughes said while it is unusual to see fund mergers across different asset management groups, it was refreshing that Ardevora had taken action on a sub-scale fund.
That said, Hughes noted the two funds are “very, very different”. Lang and Pattison’s approach is much more quant driven compared to Hanbury’s team which blends River and Mercantile’s multi-factor PVT (potential, valuation, timing) quant system with fundamental research, he said.
Crossover between the two funds’ holdings is minimal, Hughes pointed out, with only a third of Ardevora UK Income’s stock picks appearing in River and Mercantile UK Equity Income. Only 17% of its holdings featured in Hanbury’s top 10.
Hanbury’s fund also has more of a multi-cap bent with 35% of River and Mercantile UK Equity Income invested in smaller companies, he added.
Ardevora to concentrate on remaining trio of funds
In a statement, Hanbury said he was pleased to have completed the merger at a time when the future for UK equity income is looking brighter.
“It is an exciting time to be running a UK income fund and we are now seeing some very encouraging traction for the asset class this year,” Hanbury said.
“We have a balanced stock picking approach, with a blend of stocks in the portfolio which are suitable for a range of stock market conditions.
“Looking ahead, we continue to identify exciting new trends, sustainable business models and stocks with very depressed valuations in the UK, which we believe is one of the cheapest, most unloved, diverse and international equity markets in the world.”
River and Mercantile UK Equity Income is second and first quartile over three and five years. On a one year view it has trailed peers in the IA UK Equity Income sector, returning 21.8% versus the average 29.1%.
Ardevora will continue to focus on its remaining trio of funds – UK Equity, which is also co-managed by Lang and Pattison, and Global Equity and Global Long-Only Equity, co-managed by Lang and Ben Fitchew.
