Both funds sit in the UK Equity Income sector although the minion Quarterly Income fund, launched in 2005, is a unit trust and the Income fund, launched three years earlier, is an Oeic.
The Income fund will move from half-yearly to quarterly distribution following the merger, which is due to take place on 1 April 2018.
Minion fund fees a drag on performance
Geffen (pictured) is the sole listed manager on the Income fund but he co-manages the Quarterly Income fund with Storm Uru. Uru, George Boyd-Bowman and James O’Connor will be assistant managers on the Income fund, Neptune confirmed.
Willis Owen head of personal investing Adrian Lowcock said a £3.7m fund is uneconomical and would be costing investors and likely Neptune money. “Closing or merging funds isn’t always well received but on this occasion it is right to do and makes perfect sense,” he said.
Tilney managing director Jason Hollands said the high ongoing charge figure (OCF) of 1.38% on the Quarterly Income fund would be contributing to its underperformance. Over 10 years it has returned 111.9% compared to the 128.4% delivered by the larger Income fund, which has an OCF of 0.86%.
Neptune Income vs Quarterly Income performance
|Neptune Income C Acc||-5.90||-4.82||-3.01||23.55||34.04||128.39|
|Neptune Quarterly Income C Acc||-6.57||-5.15||-4.71||4.44||15.53||111.90|
|FTSE All Share TR||-9.72||-9.82||-8.90||19.74||22.81||131.83|
|IA UK Equity Income TR||-10.67||-11.39||-10.82||8.16||18.62||129.87|
Source: FE Analytics
The more concentrated portfolio in the Income fund, which has 33 equally-weighted positions, would also have contributed to outperformance, Hollands said. The Quarterly Income fund has 39 positions.
CME Group, Halma and Croda International all feature in the top-five holdings of each fund.
Monthly and quarterly income funds fall from favour
Although the Neptune Income fund is switching its distribution policy, Lowcock said income funds that are marked for their monthly or quarterly distribution policies have fallen out of favour, despite being common in the past, as platform technology improvements allow investors to manage income at the portfolio level.
Because many companies pay a quarterly dividend, fund distribution payments often end up being quarterly anyway, he said.
Willis Owen has a tool to set a regular income withdrawal on investments meaning income is managed by the platform and across the portfolio, which Lowcock said ensures income isn’t lumpy.