Sanlam UK has released its Income Study, a half-yearly investor guide to UK equity income funds.
The results reveal that the Neptune Income Fund has been placed at the top of its White List for July 2019.
This list is for the select group of funds that have established their ability over five years to produce superior total returns.
Meanwhile, the poorest overall performers are UBS UK Equity Income, L&G Equity Income and Janus Henderson UK Equity Income and Growth, which sit at the very bottom of the Black List, the lowest category.
In order to determine the best and worst performing funds, Sanlam UK analyses the performance of each fund against the absolute income generated over the past five calendar years, the capital growth of each fund over the past five 12-month periods and the volatility levels of the fund over the past five years.
The study has been running for three decades and is a quantitative assessment, reviewing and monitoring the performance of all UK equity income funds over a six-month period. The study categorises these funds into three tables called the White List, Grey List, and Black List.
White List
Neptune Income Fund moved up 25 places in the list of 62 eligible funds from the entire UK Equity Income sector in order to reach top billing. The fund outperformed its peers across a volatile period, returning 5.6 percent over the year to 30 June 2019.
The Man GLG UK Income Fund is in second place, rising from seventh, with its overall performance and income yield have strengthening its position in the White List. The Miton UK Multi Cap Income Fund rounds off the top three for the second consecutive year.
Meanwhile, the previously top-ranked Troy Trojan Income Fund dropped 11 places to number 12, with investors disappointed about total income distributed over long term periods.
New entrants in the White List include the Schroder Income Maximiser Fund and the BMO Responsible UK Income Fund. These funds were formerly members of the Grey List, the secondary table for funds with a more moderate performance, which can suggest the fund has an out-of-favour style or act as an early warning signal for a fund in decline.
Grey List
On a less positive front, notable funds from the White List descended into the Grey List, including the Franklin UK Equity Income Fund, which was adversely affected by a coalition of income, long-term performance and volatility measures.
It was relegated to the middle table along with Artemis Income, FP Miton Income, Fidelity Enhanced Income and Fidelity MoneyBuilder.
There were also positive movers within the Grey List, including the Kames UK Equity Income Fund, the Ardevora UK Income Fund, and the Liontrust Macro Equity Income Fund, which improved by 16, 32, and 11 places respectively.
Three new entrants have also positioned themselves safely in the Grey List, such as the recently renamed Janus Henderson UK Responsible Fund, which has now been added to the IA UK Equity Income Sector. It now ranks 24th overall, mainly due to performance, as its yield and dividend income paid out to investors still ranks last among its rivals.
Alongside this performance driven fund, the LF Canlife UK Equity Income Fund and the SVS Albion Olim UK Equity Fund have both qualified for inclusion in the study due to a significant growth in their assets under management. Previously they had failed to qualify for Sanlam’s reports because they failed to meet its liquidity criteria.
Interestingly, despite the Schroder Income Maximiser Fund qualifying for the White List, the Schroder Income Fund has dropped 10 positions in the Grey List, after falling 24 places in the most recent report in January. The stark disparity between the funds is a consequence of both performance and the amount of dividend income generated.
Black List
The Black List is the lowest category, for consistent under-performers and may indicate the need for remedial action.
It is showing more consistency than other sections of the study, and while several funds make new appearances, the majority are familiar names.
Alongside the bottom three, UBS UK Equity Income, L&G Equity Income and Janus Henderson UK Equity Income and Growth, other notable funds continue to perform below expectations. This includes the Unicorn UK Income Fund, the HSBC Income Fund and the Aberdeen UK Equity Income Fund.
The biggest slider is Threadneedle UK Equity Alpha Fund, which has fallen 43 places, with performance being consistently weak over all but one period reviewed. Elsewhere, two formerly Grey-listed Standard Life funds: SLI UK Equity Income Unconstrained and SLI UK Equity High Income, now also appear in the Black List. They have fallen 15 and 11 places respectively.
Is the UK still attractive to investors?
Philip Smeaton, chief investment officer at Sanlam UK, believes that the London stock valuations remain appealing compared to international market even if the UK stock market has fallen out of favour since the Brexit referendum.
Commenting on the UK investment climate, he explained that “although the shares of UK companies have been shunned by international investors, at a corporate level the low valuations resulted in 2018 being a record year for UK company acquisitions.”
He added: “Committing further funds to a market at a time when it is out of favour has often been shown to be a profitable strategy. With the three-year anniversary of the referendum having passed, and the next Brexit deadline delayed until the end of October, the prospect of regular dividends from some of the UK’s most successful companies is likely to remain attractive to investors either wanting capital growth or a source of income.”
