The Troy Trojan Income fund has shot to the top of Sanlam Private Wealth’s UK Equity Income fund league table.
The bi-annual study - which ranks funds in the sector based on absolute income generated over five years - illustrated a wide range of problems encountered by managers, as eight funds fell out of its top White List.
The report’s author, Charles Brand, highlighted how the marker was set at the start of the year after the US raised rates in December 2015
‘[The Fed] raised rates by a quarter of a point signalling the economy was moving ahead,' he said.
'Yet a collapse in oil prices, concerns about China and other global economies, and declines in the economy have led to speculation about what, if anything, the Fed will do moving forward. As a result there is a lot of uncertainty and that can breed risk.’
Brand also pointed out dividends are not quite as easy to come as yield concentration grew. ‘For seven of the top 10 UK dividend payers the markets estimates 2016’s free cash flow cover of dividend to be below that of 2015; some 43% of 2015 dividend are expected to come from the 10 stocks.
The first half then culminated in the Brexit.
‘The damage Brexit could inflict on small and mid cap companies is a risk while, conversely, depreciation in the British currency can actually help large cap exporters,’ Brand commented.
Against the unsettled backdrop, Citywire AAA-rated Francis Brooke's (pictured) Troy Trojan Income fund shot up from fifth place to lead the White List. The fund has delivered a net income of 18.8% over the last five years and a total return of 54.4%.
‘[The fund] is only one of 10 funds in the study that produced a positive return in the month of June, which saw concerns about Brexit prove detrimental to UK equity markets,’ Brand said.
The fund replaced + rated duo Fraser Mackersie and Simon Moon’s Unicorn UK Income fund, which fell into the middle of the Grey List after a difficult 12 months in which its total return fell by -10.1%.
‘It’s disappointingly large decline can be explained by its domestically focused small to mid cap bias which has underperformed the larger cap company-focused funds in the first half of this year,’ Brand said.
It was quite a spectacular fall for a fund which has been a mainstay around the top of the White List for the last two years. The recent drop cuts its five-year performance to 51.1%.
Fellow small-cap focused former frontrunner, Chelverton UK Equity Income, managed by Citywire A-rated David Horner and David Taylor, also slipped into the Grey List following a 12.3% loss over 12 months.
Citywire + rated Thomas Moore’s SLI UK Equity Income Unconstrained fund experienced one the most dramatic falls, sliding from 11th spot in the White List to the bottom of the Grey List after losing 11.8% over the last year.
‘The fund has consistently experienced the highest volatility in the study, given its unconstrained nature, with performance having been very strong in the last few years, but particularly weak recently (specifically in June after the UK referendum).’
They were joined by Carl Stick’s + rated Rathbone Income fund and AAA-rated Hugh Yarrow’s Evenlode Income fund, which were omitted from the study after they were removed from sector after failing to meet the Investment Association’s yield requirement.
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Like Unicorn and Chelverton’s offerings, the fund focuses on small and mid caps and has had a tough 12 months, losing 10.3%.
However, its five-year return of 60.1% and net income of 21.5% over this period has propelled it into the premier league.
‘As well as providing high income, Chand Lall’s fund had an impressive long-term track record in spite of short-term Brexit-related poor performance.’
Morton returned 6% over the last year, lifting the fund's five-year gain to 47.9%. ‘The fund has had very strong performance versus peers in the most period and low volatility over the last five years,’ Brand said.
They are joined by other White List new entrants, Newton UK Income and Fidelity Enhanced Income, managed by AA-rated Christopher Metcalfe and A-rated Michael Clark respectively. The latter has delivered is the highest yielder on the list, with a net income of 27.5% over five years.
While there was flurry of activity above, there was little movement among equity income laggards.
Once again the team-run Scottish Widows UK Equity Income was bottom of the Black List following a loss of 3.2%. The fund has returned 19.8% over the last five years and delivered a net income of 15.4%.
Graham Ashby’s Santander Enhanced Income was also demoted to the bottom tier despite a relatively healthy income of 22.1% over five years.
‘Whilst the fund ranks very promisingly for yield, its performance history has been somewhat disappointing, particularly over the longer term,’ Brand said. The fund has returned 22.1% over five years.
There was better news for + rated Ben Whitmore’s (pictured above) Jupiter Income trust, which moved out of the bottom league and into the top quarter of the Grey list. The fund, which targets out of favour stocks, returned 5.5% over the last 12 months.