Morningstar has downgraded its rating of the £729m Trojan Income fund from ‘positive’ to ‘neutral’ due to concerns over capital and income growth in recent years.
Daniel Haydon, manager research analyst at Morningstar, said his team have concerns over recent stock picks and position sizing, while its shift to a ‘growthier’ profile means its track record is ‘less relevant’.
“For this fund, both capital growth and income growth have disappointed relative to other UK equity income growth peers,” he said. “As a result, our conviction in the manager and the way he implements Troy’s investment process in UK equities is diminished. This leads to a downgrade to ‘Average’ from ‘Above Average’ for both the ‘People’ and ‘Process’ pillars.”
See also: Investors ditch gold despite soaring prices
The strategy has returned 4.3% over the last five years, according to FE Fundinfo data. This compares to an IA UK All Companies sector average of 18.5%.
The fund was launched in 2004 and has been run by lead manager Blake Hutchins since late 2021.
Morningstar’s Haydon added: “The portfolio has also become growthier through the lens of the style box. This means the past track record is now less relevant and stockpicking is more important within the defensive sectors. The portfolio has moved away from certain sectors, including oil, banks, and tobacco, which are traditional hunting grounds for more traditional UK equity income.
“Perhaps most importantly, income growth has not recovered sufficiently since the dividend reset during the coronavirus pandemic, and this compares poorly against similar-minded UK equity income growth investors.
“Additionally, in the trailing three years to end-March 2024, the strategy has underperformed both the FTSE All Share Index and the UK equity income Morningstar Category average. Volatility has also picked up, meaning that risk-adjusted returns offer no consolation.
“In part, this can be explained by style headwinds; we do not expect this strategy to keep up when markets are led by low-quality, cyclical commoditised sectors. That said, poor stock selection has also detracted notably.”
