Cholwill’s fund was booted from Sanlam’s White List, the top funds based on yield and income generation, to its Grey List due to poor performance. Over five years, the fund has produced a gross yield of 3.8%, below the Grey List average of 4.2%.
Other large movers included Morton’s £560m equity income fund, which dropped 20 positions in the Grey List, and Francis Brookes’ Troy Income fund, which placed 38 out of a total 61 funds included in the rankings.
The Investment Association UK Equity Income sector has been one of the hardest hit recently, as Brexit uncertainties, including the looming possibility of a no deal scenario, have swayed investor sentiment.
Sanlam noted in its study that in January the value of investments in the sector fell at a faster rate than those in any other sector. But it said the sector remains one of the largest with over £60bn under management, roughly 10% of the assets invested in UK-domiciled Oeics.
Morningstar defends Colin Morton
Morningstar defended Morton’s UK equity income fund, despite Sanlam’s downgrade. The fund currently has a silver rating.
Samuel Meakin, analyst of manager research at Morningstar, said the fund is one they rate highly, noting that Morton’s valuation discipline and long tenure on the fund since 1995 has “provided stability and consistency for investors”.
He said the fund has a tendency to underperform in times of market rallies due to its focus on stable, large-cap and high quality companies. Conversely the fund has protected investors in down markets like 2008 and 2011.
“In 2016, despite slightly underperforming the index, the fund comfortably outperformed the category average, aided by the manager’s cautious positioning and allocation to international-earning stocks that outperformed in the immediate aftermath of the Brexit referendum,” Meakin said.
“Last year, the fund again beat the category average but slightly underperformed the index. Attribution analysis shows that stock selection was strong overall, but sector allocation, such as the overweight position in utilities, detracted from relative returns.
“In 2018 so far, the fund is ahead of both the index and category average, helped by stock selection in the materials and consumer discretionary sector. Over the five-year period, the fund ranks in the top decile of the Morningstar UK Equity Income category.”
Slater Income fund delivers top yield
Sanlam said its White List has remained relatively stable since the last review.
Mark Slater’s eponymous income fund climbed to the top of Sanlam’s white list, dethroning the Miton UK Multi Cap Income fund, now third on the list.
Sanlam said the £148m Slater Income fund catapulted into the first position due to its high-ranking dividend yield versus peers, consistent performance and moderate volatility.
It generated a gross yield of 4.4% over five years at 30 June compared with the White List Average of 4.7%.
Performance-wise the fund is third and fourth quartile against the IA UK Equity Income sector, according to data from Trustnet.
Sanlam Black List
Sanlam’s Black List, a collection of the sector’s laggards, also remained relatively consistent. The Invesco Perpetual Income & Growth fund, M&G Dividend fund, HSBC Income Fund and Aberdeen UK Equity Income fund continued to languish near the bottom of the Black List.
The Unicorn Income fund, Schroder UK Alpha Income fund and Fidelity Enhanced Income fund found themselves among the worst funds for the first time due to recent stock specific problems and performance issues.
Unicorn fund managers Simon Moon and Fraser Mackersie apologised to investors in April for holding drinks business Conviviality as it went under.