Sanlam Private Wealth’s half yearly income study, published today, offers a quantitative assessment of all UK equity income funds.
Sanlam compiles its fund rankings, with the strongest funds in the White List, as it monitors performance against the following statistical criteria: Absolute income generated over the past five calendar years; Capital growth for each of the past five 12-month periods and volatility over the past five years.
The firm describes the White List as the select group of funds that have established their ability over five years to produce superior total returns. The Grey List, it says, can be a temporary home for a manager with an out-of-favour style or an early warning signal for a fund in decline, and the Black List is for consistent underperformers and, unless remedial action is being taken, a sign for investors to look elsewhere.
Topping Sanlam’s White list is the PFS Chelverton Equity Fund, co-managed by David Horner and David Taylor. The firm says it has benefited from its focus on mid and smaller cap companies which have had a resurgence in the first half of 2015, outperforming the wider market. Martin Cholwill’s Royal London UK Equity Income Fund was pushed from this slot, though it remains on the podium in third place.
The Standard Life Investments UK Equity High Income Unconstrained Fund, managed by Thomas Moore, has been one of the best performing funds, according to the study, and has moved up the ranks, where it retained a solid position. Meanwhile, the JOHCM UK Equity Income Fund has regained a place on the White List and a new entrant is the RBS Equity Income Fund.
Sanlam’s last report saw the Evenolde Income Fund, managed by Hugh Yarrow and Ben Peters, enter well into the White List. However, the firm reports, six months on, their fund, which has delivered on its mandate since inception, has drifted down to the top of the Grey List – despite an overall historical 12-month yield level higher than most of the White List constituents.
The Fidelity Money Builder Dividend Fund has fallen from the White List into the middle of the Grey List as did AXA Framlingtons’s Monthly Income Fund. The Standard Life Investments UK Equity High Income Fund has moved well out of the Black List on the back of performance over the past 12 months. Two funds of substantial size have moved into the Black List, being the Newton UK Income Fund and the Jupiter Income Trust. The Kames UK Equity Income Fund has made positive progress and moved up through the Black List, though performance was not quite enough to see it escape into the Grey List.
Charles Brand, Head of Portfolio Management, comments: “We believe investors should look at the implications of investing in equity income funds as volatility increases, after a relatively muted period. Dividend payments are a more stable source of returns than the often unreliable capital gains on shares, which should appeal to investors who have been unnerved by this year’s geopolitical events, many of which are likely to persist.
“A regular dividend payment provides a tangible anchor for the share price, making it less susceptible to market fluctuations. Companies with well-covered dividends tend to be less volatile and often outperform in times of market stress: this is because many companies only start paying dividends when they have become large businesses with secure lines of revenue.
“The volatility of returns for the Investment Association’s UK Equity Income sector has been lower than that of the both the UK All Companies sector and the FTSE 100 over the last ten years. This is particularly important to investors making regular withdrawals, as they introduce the risk of hampering long-term portfolio growth by reducing the capital base after a period of negative performance. The market has become more volatile from January 2014 to June 2015, with daily returns becoming more dispersed on both the positive and negative side.”
Copies of Sanlam’s list are available free to individual investors who call their Bath office on 01225 460010.