Jupiter Income, M&G Dividend and Halifax UK Equity Income have all fallen short of their IMA UK Equity Income sector average and FTSE All Share benchmark over a three, five and 10 year period, according to FE Trustnet research.
The funds are among the largest in their sector, each at least £1bn in size. Their combined assets under management (AUM) are in excess of £6.3bn.
Performance of funds versus sector and index
| Name | 3yrs (%) | 5yrs (%) | 10 yrs (%) |
| FTSE All Share | 53.06 | 37.59 | 163.46 |
| IMA UK Equity Income | 55.01 | 38.73 | 147.52 |
| Jupiter Income | 27.66 | 25.25 | 140.01 |
| M&G Dividend | 51.54 | 34.65 | 136.10 |
| Halifax UK Equity Income | 40.09 | 27.19 | 95.19 |
Source: FE Analytics
The £2.9bn Halifax fund – the largest of the three on the list – is the worst performer overall. Our data shows that it’s a bottom quartile performer over all three time periods. Over a three and 10 year period, it’s in the bottom decile of its sector.
The fund has fallen short of its FTSE All Share benchmark in each of the last 10 calendar years.
The Jupiter Income fund is a former darling of the IMA UK Equity Income sector, and in spite of its steep decline in performance in recent years, it’s still £2bn in size.
Performance of funds versus sector and index over 10yrs
Source: FE Analytics
The fund had a great run in the early 2000s, but has had a dire period of performance since the financial crisis. FE data shows that Jupiter Income was bottom quartile in 2009, 2010 and 2012, though it did manage to outperform in 2011.
Among the fund’s biggest errors was an overweight to the media sector during and after the financial crisis. Jupiter Income had major positions in Yell and Johnston Press; the former defaulted, and the latter is down in excess of 80 per cent over five years.
M&G Dividend is the only fund on the list of three that has significantly grown in recent years, thanks to its merger with the M&G Income fund in August 2011.
The £1.4bn fund is a third quartile performer in its sector over a three, five and 10 year period.
All three of the funds have seen changes at the top in the last three years. Former FE Alpha Manager Anthony Nutt stepped down as manager at the end of the last year, and was replaced by Ben Whitmore (pictured), who has had great success running the Jupiter UK Special Situations fund.
Jupiter says it is too early to comment on the changes Whitmore has made to the portfolio, but the value bias that he uses on the Special Sits fund is likely to come through in some shape or form. Whitmore spoke about his process in an interview with FE Trustnet earlier this year.
Since Whitmore’s appointment, the fund is performing in line with its sector and benchmark.
Performance of fund versus sector and index in 2013
Source: FE Analytics
Alex Odd was installed as manager of the M&G Dividend fund in July 2010. Since then the fund has only marginally underperformed its sector and benchmark, with returns of 52.5 per cent. The average UK Equity Income fund is up 55.25 per cent over this period, while the index has delivered 56.72 per cent.
A spokesperson for M&G says that Odd has changed the investment style since coming over, which is beginning to bear fruit.
“Since taking over the fund, Alex has looked to refocus the investment approach to address the key risks of traditional income investing: concentration risk, at a stock and sector level, and the inherent style bias of income funds,” they said.
“By taking a more diversified approach, with an emphasis on dividend growth as well as yield, the new strategy should drive returns and dividend growth across the investment cycle, not just when the income style is in favour.”
Performance of fund versus sector and index since July 2010
Source: FE Analytics
M&G Dividend is currently yielding 3.59 per cent, which is a touch below average for the sector. However, Rob Gleeson warned in a recent FE Trustnet article that investors shouldn’t focus too specifically on headline yields, and emphasised dividend growth instead.
“Alex is confident that this approach will generate superior medium and longer term income and capital growth,” the spokesperson continued.
“In the short term this approach can lead to some underperformance, such as has happened recently, due to the strength of high yield areas of the market, after some good performance by the fund up to last summer.”
M&G Dividend is a bottom quartile performer year-to-date, with returns of 15.96 per cent.
SWIP, which manages the Halifax UK Equity Income fund, point out that the whole equity range has undergone big changes in recent months.
The group says it is confident the consistent underperformance of the fund will be put right as a result.
“The Halifax UK Equity Income fund has undergone a change in investment strategy and fund management responsibility and is now managed jointly by SWIP’s quantitative team and SWIP’s global equities team,” a spokesperson said.
“The portfolio is actively managed and aims to drive fund returns within a risk-aware portfolio management framework. Following the transition to this strategy, we are confident that these changes will deliver improved performance against the benchmark.”
Another giant underperforming UK Equity Income fund worth a mention is the £1.2bn SWIP MultiManager UK Equity Income fund, which is a bottom quartile performer over a one and five year period, and third quartile over three. It’s yet to achieve a 10 year track record, though.
Jason Hollands, managing director of business and communications at Bestinvest, says he doesn’t rate any of the funds on the list currently.
He points to Jupiter Income as one to watch for the future, but says that the wealth of talent in the UK Equity Income sector means that investors have plenty of choice elsewhere.
“Jupiter Income was one that we dropped from our “buy list” some time ago, and for some time it was on a sell rating,” he said.
“There were some real concerns over performance, but that’s changed now because there’s a new manager.”
“Whitmore has a very good record and scores very highly in a lot of our quant ratings such as information ratio, but it’s too early to tell.”
With regard to the M&G Dividend and Halifax UK Equity Income fund, he said: “It’s got a very aggressive yield target of 33 per cent above the All Share, which it’s currently not hitting.”
“Halifax UK Equity Income is a perennial underperformer. What can you say? Investors should have looked elsewhere long ago.”
“SWIP has made some changes, but they’ve made a lot of changes over the years. The good thing about the UK Equity Income sector is that it’s got a whole host of very strong managers, and a lot of them run very big funds.”
“I think in this case, investors are better off looking elsewhere.”
In the next article in the series, we look at giant underperformers in the IMA UK All Companies.