Robin Geffen has returned to the top of Sanlam’s income rankings as volatility from the coronavirus and unprecedented dividend cuts resulted in a dramatic shake up of the sector’s winners and losers.
The Liontrust Income fund, run by the former Neptune boss (pictured), saw its mid-year top spot restored in the latest Sanlam Income Study, which judges 59 UK equity income funds on a range of criteria over five years.
The move marks a swift reversal for the £333.6m fund, which just six months prior had crashed out of Sanlam’s White List, a select group of funds that have delivered superior returns over five years, into the Grey List, described by Sanlam as “a temporary home for a manager with an out-of-favour style or an early warning signal for a fund in decline”.
The study noted Geffen’s fund has delivered “solid performance” over several years and had held up well during the recent Covid stock market rout.
Though the fund’s total returns of –13.2% in the year to 30 June 2020 were weaker than the White List average of –9.0%, it has proved more consistent than other top contenders across the study’s criteria of volatility, performance and income, the report noted.
Over the last five years, Liontrust Income has distributed £25.30 based on an initial investment of £100. At the end of the period, the fund had a dividend yield of 5.3%, just under the White List average of 5.4%.
Covid prompts shake-up of top income funds
Sanlam noted that navigating the dividend environment amid the disruption caused by the coronavirus has been incredibly challenging for managers.
So far in August UK corporates have cut a further £3.4bn worth of dividends, bringing the total of payments sliced to £41bn.
“Long-term dividend growth has certainly benefitted income investors over the last decade, but the big question is whether these payments are sustainable,” said Philip Smeaton, chief investment officer at Sanlam Private Wealth.
“Most of the UK’s largest companies pay dividends, although a disproportionate volume are from just a handful of major industries. Pressure on cash flows has forced companies to slash payouts, in some cases for the first time ever. In many instances these have been accompanied by share price collapses, which have only added to the pain.”
The biggest shake-up was among funds at the top of the leaderboard. Six out of the first eight funds were new entrants to the White List, Sanlam said, including the BlackRock UK Income Fund and the ES R&M UK Equity Income Fund, which jumped 33 and 24 places respectively.
Returning to the White List after brief stints in the Grey List were the £837m LF Miton UK Multi Cap Income fund and £251m Fidelity Enhanced Income fund.
The former fund, which is run by Gervais Williams and Martin Turner, jumped an impressive 17 places, snagging third place in Sanlam’s rankings. Over the year to 30 June 2020 the fund has returned –1.5%, making it the top performing fund in Sanlam’s list, and has been helped by its “strong volatility management,” the report said.
But other previous White List mainstays saw a reversal of fortunes. These included the Lazard MultiCap UK Income Fund, the Royal London UK Equity Income Fund and the Allianz UK Equity Income Fund, with the latter two falling “quite dramatically” by 17 and 19 places respectively.
Slater Income becomes ‘surprising’ addition to the Black List
Another “surprising” faller was the Slater Income fund, which slid 25 places into Sanlam’s Black List for the first time. Over the last few studies, the fund, which is managed by a team of five including Mark Slater, has gradually slipped from the White List to the Grey List and finally to Sanlam’s group of consistent underperformers.
Sanlam noted the fund’s style and small and mid-cap bias have hampered its recovery as equity markets stabilised in the second quarter.
“Small-cap companies have generally faced the greatest challenge within the UK Equity Income sector,” said Smeaton.
“Compared with their large-cap counterparts, small-caps generally have a domestic bias and more narrowly focused business models. Consequently, they have been at the forefront of underperformance as consumers have stayed indoors and economic activity has generally slowed.”
Other big downward movers were the Premier Income and Optimum Income funds, which “dropped substantially” after weak performance and volatility indicators.
The Premier Income fund, which was called out as one of the most improved funds in the previous report dropped 35 places taking it from the White List into the Black List.
