John Monaghan, research director at Titan Square Mile, takes a deep dive into the IA UK Equity Income sector to discover the winners and losers of 2025. The success stories are among the index’s largest constituents with large caps outperforming their small- and mid-sized peers.
As at the end of January 2026, the IA UK Equity Income sector consisted of 65 funds, with assets in the region of £40bn. Against a well reported backdrop of poor investor sentiment towards UK equities generally, it is no surprise to see that the bulk of funds in the sector have faced outflows; some of which have been quite sizeable.
Indeed, when looking at the IA’s flow data (to the end of December 2025), the sector experienced outflows in every month of 2025 and was second only to the UK All Companies sector in being the least popular destination for investor monies over 2025.
Despite the lack of investor appetite, there remains a good choice of options within the sector, with all bar six funds having assets in excess of £50m (often cited as a ‘magic number’ for fund selectors). That being said, there is a high level of concentration at the upper end of the AUM scale. Indeed, it is worth noting that the 10 largest funds account for more than half of the sector’s assets, and the top 20 funds hold over 75% of assets. There is some representation from passive providers among the largest strategies, but ostensibly the majority of assets remain actively managed.
Macro backdrop
Over the past few years it has been easy to build a bear case for UK equities. Poor sentiment has had investors voting with their feet, with political instability and stubbornly high inflation, which has made the Bank of England reluctant to cut interest rates, being but a few of the reasons to avoid the UK. However, as we know the UK stockmarket is not an entirely accurate representation of the UK economy and many of the issues cited are domestic in nature.
Consequently, some of these factors have not necessarily inhibited share price appreciation from the constituents of the UK’s major stockmarket indices, especially those that derive revenues from their overseas operations. Similarly, low starting valuations in the banking sector in 2023 and 2024, for example, provided an excellent opportunity for investment and one that has reaped strong rewards in the period since.
The UK market has enjoyed strong returns over the past three years. To the end of January, major UK equity indices returned in the region of 45%, with the average manager in the sector posting a 36% return over the same period. Looking at some of the key performance drivers, these were very much focused in a smaller number of sectors. The aforementioned banks performed very well, including the likes of index heavyweight, HSBC (162%) and the more domestically-orientated NatWest and Lloyds (176% and 142%, respectively).
The UK government’s decision to increase defence spending proved an incredibly strong tail wind for the likes of Rolls-Royce (+1,060%) and BAE Systems (+147%).
Elsewhere, British American Tobacco (+78%) also weighed in with a strong return. In contrast, income stalwarts and popular stocks within a number of UK equity income strategies, such as the oil major, BP (+11%), consumer goods plays, Unilever (+6%) and Diageo (-47%), all underperformed major indices.
Market cap and factor biases have also played a part in which types of funds have done well in the recent three-year period. Given some of the best success stories over recent times are among the index’s largest constituents, it is no surprise that large caps outperformed their small and medium-sized peers, which resulted in a number of multi-cap income funds struggling.
Similarly, value as a style significantly outperformed the quality and growth factors, so managers with a preference for the latter two styles (or combinations thereof), have tended to lag their value-orientated peers.
The combination of the bulk of the index’s returns being generated by a fairly small number of stocks and given such a sizeable skew towards factor and market-cap biases, it is unsurprising to us that the average fund underperformed major indices by approximately 900 basis points on a three-year view to the end of January 2026.
Funds to watch: Assets under management
The Titan Square Mile AA-rated Artemis Income fund has been the sector’s largest fund for a number of years. It boasts an experienced triumvirate of managers, Nick Shenton, Andy Marsh and the architect of the investment approach, Adrian Frost. The process focuses on identifying and investing in companies with sustainable and durable free cashflows to construct a diversified portfolio that can deliver an attractive total return. The fund has been designed to generate an attractive yield relative to the wider market, but the managers will not place capital at risk to optically boost the yield on offer, which is in keeping with the managers’ total return aspirations.
The CT UK Equity Income fund maintains its position as one of the largest funds in the sector despite experiencing some manager change over the past few years. Jeremy Smith assumed responsibility from the previous long-standing incumbent, Richard Colwell, in November 2022, but has broadly followed his predecessor’s investment style of seeking to invest in attractively yielding companies, which tilts the portfolio towards a value bias. However, as Smith is also mindful of the fund’s requirement to deliver income, he strives to keep the style of the fund relatively balanced in aggregate.
Another fund with a sizeable level of assets is the BNY Mellon UK Income fund, which is overseen by David Cumming and Tim Lucas. We note that prior to the current managers assuming responsibility in April 2022, there had been a fairly high turnover of managers in the five years prior to that point. Nevertheless, under the stewardship of Cumming and Lucas, the ship has much been steadied with a valuation sensitive approach that focuses on the sustainability of cashflows and dividend growth.
Funds to watch: Newcomers
The Schroder UK-Listed Equity Income Maximiser strategy draws on the principles of the group’s long-standing Maximiser range in that call options are written on existing stock positions to boost the fund’s income. Launched in December 2020, the underlying portfolio is essentially a FTSE 100 tracker, whose constituent holdings are overwritten to boost income to achieve a 7% yield target.
The FP Octopus UK Multi Cap Income fund was launched in December 2018, with its lead manager Chris McVey being in place since. Portfolio holdings typically meet one or more of the following criteria: faster earnings growth than the market, a yield in excess of the market or faster dividend growth than the market. The result is a portfolio that is tilted towards a growth style but is well diversified at the stock level (approximately 70 holdings) and sector levels.
In a similar vein, the WS Gresham House UK Multi Cap Income fund, managed by Ken Wotton and Brendan Gulston, was launched in June 2017. The approach centres on fundamental analysis, with a keen focus on capital preservation and attempting to limit downside risk. Within this, active company engagement is a key element of the process. Market-cap exposures do tend to favour small, medium and AIM-listed entities, with investment typically across 40-50 holdings.
Funds to watch: 3-yr performance
The sector’s best-performing fund over the period is the TM Redwheel UK Equity Income fund, managed by Ian Lance and Nick Purves. These seasoned operators have remained resolute in adhering to their value-orientated investment style. Key to their approach is investing in companies with strong balance sheets and solid management teams but where the market has incorrectly valued a business’s long-term earnings potential.
The Man Income fund has enjoyed a strong run on a three-year view to end January. Managed by Henry Dixon and Jack Barrat – ardent proponents of the value investment style – this strategy is managed in an unconstrained manner but also seeks to deliver a growing level of income. The team seek to unearth opportunities via a thorough analysis of a company’s balance sheet and focusing on a firm’s assets, cash and strength, and resilience of its cash flows. Income is distributed monthly.
Closely following the two previous strategies is the JOHCM UK Equity Income fund. In a common theme, this fund is also managed by a pair of veteran fund managers, Clive Beagles and James Lowen (who recently added Josh Herson as a third portfolio manager), who have plied their trade across a range of market conditions. There is more of a multi-cap style at play here, but maintaining a strict valuation discipline is a central tenet of the approach. Favoured companies typically exhibit balance sheets with limited leverage and a good record of cashflow generation, therefore supporting a more stable approach to dividend distribution.
