To be ranked in Sanlam’s ‘White List’ in the IA UK Equity Income sector, funds need to have produce superior total returns over a five-year period. If they fail to do so, be it because the manager’s investment style has fallen out of favour, funds are placed in the group’s ‘Grey List’, while the consistent underperformers are housed in the group’s so-called ‘Black List’.
In the latest study, the Schroder Income Maximiser, Threadneedle UK Equity Alpha Income, Franklin UK Equity Income and RBS Equity Income funds all lost their White List status and were placed in the Grey List.
Having re-entered the White List in the last study published in February, Kevin Murphy and Nick Kirrage’s Schroder Income Maximiser, slipped back into the Grey List as performance fell back. Indeed, the fund was the highest climber in the last study and Sanlam notes that it does still rank first in the peer group for dividend income provided in the past five years.
Heading in the opposite direction, the Unicorn UK Income Fund, managed by Fraser Mackersie and Simon Moon, has moved back into the White List, having been eliminated last year.
Sanlam noted the small-cap biased fund, like many others, was impacted significantly by the UK referendum last year. However, it says that since the shock it has posted excellent returns, earning its recall into the premier list of funds.
Retaining its position at the top of the White List was Gervais William’s and Martin Turner’s CF Miton UK Multi Cap Income Funds. Having taken top spot away from the Troy Trojan Income Fund in February, Sanlam said a combination of consistently strong returns, low volatility and the maintenance of a high income pay-out, saw it hold it position at the top of the charts.
However, after being dethroned and placed into the Grey List in February, Francis Brooke’s Troy Trojan Income Fund continued to fall, slipping a further 16 places to 21st on the list of funds – a list which Sanlam said could be an early warning signal for a fund in decline.
According to Sanlam, the quality style bias of Brooke’s fund has continued to impact on performance and the amount of income the fund has provided over the last five years has continued to lag.
The largest overall mover in the study was the Man GLG Income Fund, which moved up 32 places from the Black List to nearly top of the Grey List, with its small and mid-cap bias serving the fund well.
The biggest faller was the Newton UK Income Fund which dropped 24 places from the Grey List into the Black. This followed its fall from the White List in February, with Sanlam noting it has since struggled in terms of performance and its dividend pay-out level.
Meanwhile following the decision of the Investment Association (IA) to relax the yield hurdle on fund’s being included in the sector, Sanlam noted the Schroder Income and Rathbone Income funds, were not added into the Grey List after their re-inclusion into the sector.
However, Ciaron Mallon’s Invesco Perpetual Income & Growth fund, which also made a come back into the sector, found itself immediately placed in the Black List.
Sanlam CIO Phil Smeaton said: “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.
“The market has been open to speculative activity, but the fundamentals remain strong. While concerns raised about the future relationship between the UK and EU – not to mention the shape of the labour market – to come have some merit, the outlook for UK-listed companies appears to have weathered any potential storm. Profit margins remain in healthy shape offering potential for investors to take advantage of larger dividends and any stocks perceived to be at a discount.”
