Sanlam UK’s Income Study

06 February 2019

Our round-up of the top performing UK Equity income funds in 2018

  • The Sanlam Income Study, which has been running for more than 30 years, reveals the best all-rounders within the UK equity income sector

  • The Troy Trojan Income Fund, run by Francis Brooke, made a strong come-back to the top of the list, after a challenging 2017

  • The largest negative move was from the Chelverton UK Equity Income Fund which dropped 39 places from the White List to the Black List

  • Recent market volatility has been a general headwind for many of the funds in the study

Sanlam UK has released its half-yearly Income Study, the definitive investor guide to UK equity income funds.
The study, which has been running for more than 30 years, is a quantitative assessment that reviews and monitors the performance of all UK equity income funds over a six-month period. The Income Study categorises these funds into White List, Grey List, and Black List:
The White List is the select group of funds that have established their ability over five years to produce superior total returns.
The Grey List can be a temporary home for a manager with an out-of-favour style or an early warning signal for a fund in decline.
The Black List is for consistent underperformers and may indicate the need for remedial action.
In order to determine the best and worst performing funds, Sanlam UK analyses the performance against the following metrics:

  • Absolute income generated over the past five calendar years

  • Capital growth for each of the past five 12-month periods

  • Volatility over the past five years

The White List

The Troy Trojan Income Fund, run by Francis Brooke, made a strong come-back to the top of the list, after a challenging 2017. The fund jumped 37 positions to reach the top position that was previously held by the Slater Income Fund, which has dropped into the Grey List after a more difficult 2018 and a pickup in volatility over the period reviewed.
The AXA Framlington Monthly Income Fund, run by George Luckraft, has maintained its second place. The high-ranking dividend yield, consistent performance and moderate volatility have contributed to its performance. The Miton UK Multi Cap Income Fund also appears in an unchanged position in third, having remained in the top three funds for several years.
In fourth place, the Franklin UK Equity Income Fund, has made a strong reappearance, bouncing up from the Grey List.
The Artemis Income Fund, run by Adrian Frost, with a good combination of performance, dividend paid and low volatility, dropped one place to fifth. Michael Clark’s Fidelity MoneyBuilder Dividend Fund which ranks in the top eight, was previously bottom of the Grey List. Since the last review, the fund has continued to deliver on its mandate, being cautiously positioned and despite not having the highest dividend income paid or the lowest volatility, the fund has managed to perform consistently in all other years reviewed.
Other new entrants include the Santander Equity Income Fund and the Santander Enhanced Income Fund. Consistency of calendar performance numbers, with limited volatility and good dividend income paid from both funds have helped them to secure positions in the White List. This is quite remarkable given that the Equity Income version was in the Black List in January 2017, while the Enhanced Income fund was at the bottom of the Grey List.
The Man GLG UK Income Fund remains in the list, as well as the Miton Income Fund. Finally, the Insight Equity Income Booster Fund and the RBS Equity Income Fund have both made appearances at the bottom of the list. Both funds benefited from a good set of numbers, a high dividend income paid, and a lower standard deviation compared to peers.

The Grey List

The Marlborough Multi Cap Income Fund, managed by Siddarth Lall, had a poor 2018 in terms of calendar performance, ranking 23. Kevin Murphy and Nick Kirrage’s Schroder Income Fund has dropped 24 positions, despite being ranked first in terms of performance in 2018, but high volatility and total dividend income for the period adversely impacted the fund.
The Schroder Income Maximiser Fund also dropped for similar reasons, specifically the high standard deviation generated over the last five years. This pattern of high volatility has been a general headwind for some Grey List funds. And it is volatility which is also responsible for the Majedie UK Income Fund, the SLI UK Equity Income Unconstrained Fund and the Rathbone Income Fund falling 20, 19 and 10 places respectively.
The JOHCM UK Equity Income Fund’s positioning also worsened. Run by James Lowen and Clive Beagles, this fund has dropped 28 places, predominantly due to disappointing performance, and is now ranked 44th.
Other large movers were the Liontrust Macro Equity Income Fund, managed by Stephen Bailey and Jamie Clark. This fund dropped 10 positions on the back of poor numbers for the past couple of calendar years. The situation was similar for Chris White whose fund, the Premier Income fund, had poor numbers in 2018, with higher volatility than peers.

The Black List

The Black List continues to have many of the same poor performers as in previous studies, with a few new entrants to the list.

The biggest mover was the Chelverton UK Equity Income Fund which dropped 39 places from the White List to the Black List. The fund, managed by David Taylor and David Horner, suffered from stock specific issues in the small and mid-cap space, hurting the most recent performance and leading to the worst standard deviation over five years.

Another large mover was the Merian UK Equity Income Fund (formerly Old Mutual) which dropped 28 places. The fund had a difficult year in 2018 which damaged the overall performance of the strategy, despite a conservative standard deviation level and a good income paid.

The Ardevora UK Income Fund dropped into the Black List. Performance was the key driver for the 33-position fall, as both 2016 and 2017 were challenging for the fund. The MI Downing Monthly Income Fund had a similar situation, dropping 27 positions after delivering disappointing performance numbers.

Laggards that continue to find themselves near the bottom of the list include the Unicorn UK Income Fund, the M&G Dividend Fund, the HSBC Income Fund and the Aberdeen UK Equity Income Fund.

Philip Smeaton, Chief Investment Officer at Sanlam UK, comments:

“Managers of funds appearing in the Sanlam UK Income Study’s White List have produced the leading performances in our analysis which is based on measurements of income, growth, and volatility over a 5-year period.

As a result of sector concentration, traditional equity income funds that have tended to allocate disproportionately to sectors with the highest dividend yields may contain a hidden risk for investors. Most managers of those funds appearing at the top of our study have the ability to vary the size of their underlying positions according to where they see the best opportunities. Such a flexible approach enables managers to respond to prevailing market conditions over the short to medium term.
Over the past year, dividend payments have helped the FTSE 100 outperform the other UK indices. The main index currently supports a dividend yield approaching 5%, while the more broadly-based FTSE 250 yields around 3.9%. The UK equity income sector offers funds that focus on the top 100, as well as those with a bias towards the wider market and can be an attractive option for investors looking for a stable income.” 

How to Invest

Investors can use the Income Study to inform their own choices and decisions about individual funds. Sanlam UK also offers two ways to invest in them, through its execution-only service or through a portfolio of funds selected from its White List Portfolio ISA. 

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