A look across the 87-strong IMA UK Equity Income sector shows three funds have made first-decile returns over 2014 so far as well as being first decile when comes to volatility, meaning they are among the least volatile of their peers. All three are also top decile for maximum drawdown, which shows how much an investor would have lost if they bought and sold units at the worst possible times.
Looking at the IMA Global Equity Income sector, which has 34 members, shows only one fund has put in first decile performance and volatility over the year to date, according to FE Analytics.
The year so far has not been an easy one for UK equities, with the FTSE All Share down 0.08 per cent after struggling to make progress in light of high valuations, numerous geo-political risks, renewed weakness in the eurozone and uncertainty over the impact of low oil prices. The index’s volatility has been 10.58 per cent.
The average fund in the IMA UK Equity Income sector has fared somewhat better, with a total return of 2.53 per cent and volatility of 10.43 per cent.
Global equities have dealt with these headwinds better, with the MSCI World up 9.94 per cent year to date – driven by another year of strong year from the US, where the S&P 500 is ahead 17.27 per cent. Volatility was 10.15 per cent, meanwhile.
The IMA Global Equity Income sector’s average return lags at 6.39 per cent while volatility was 9.57 per cent.
FE Alpha Manager Francis Brooke’s £2bn Trojan Income fund is the top performer in the IMA UK Equity Income sector with a gain of 9.19 per cent. Meanwhile, its annualised volatility is 9.17 per cent and its maximum drawdown is lowest in the sector at 5.51 per cent.
Performance of fund vs sector and index over year to date
Source: FE Analytics
The five FE Crown-rated fund makes good use of the cautious investment approach favoured by Troy Asset Management and has a track record of serving its investors well in more difficult markets. In 2011, for example, it made 6.28 per cent while the FTSE All Share lost 3.46 per cent.
Brooke has a concentrated portfolio of just 42 names, compared with an average of about 70 stocks among his peers. Its largest holding is Unilever, followed by BP, Royal Dutch Shell, Imperial Tobacco and HSBC.
The fund appears on the FE Research team’s Select 100 and came first in the team’s recent income study, which ranked funds on their track record in terms of yield, dividend stability and downside protection.
Trojan Income has clean ongoing charges of 1.03 per cent and yields 3.83 per cent in its income share class.
George Luckraft’s £137.1m AXA Framlington Monthly Income fund also sits in the top decile for returns and volatility this year. It has gained 6.87 per cent – the sector’s fourth best returns – with volatility of 7.95 per cent, making it the sector’s least volatile fund.
When it comes to maximum drawdown, the worst loss an investor would have faced was 5.93 per cent.
Performance of fund vs sector and index over year to date
Source: FE Analytics
Luckraft has around one-third of the five crown-rated fund in the FTSE 100 with its largest holdings being Royal Dutch Shell, HSBC, BP, British American Tobacco and Vodafone. Some 18.77 per cent is in the FTSE Small Cap while there’s 29.61 per cent in its ‘other and AIM’ bucket.
The fund sits in the IMA UK Equity Income sector’s first quartile over one and three years, while its second quartile over five years. However, since Luckraft took over in September 2002 it has underperformed the peer group and All Share with a 122.27 per cent return, after being hit especially hard during the financial crisis.
AXA Framlington Monthly Income has ongoing charges of 0.85 per cent with a 3.77 per cent yield.
MFM Slater Income is the last of the three funds in the sector’s top decile for year to date returns and volatility. Headed by FE Alpha Manager Mark Slater, it’s gained 6.70 per cent with volatility of 9.22 per cent and a 5.60 per cent maximum drawdown.
Performance of fund vs sector and index over year to date
Source: FE Analytics
Slater is one of the most renowned boutique UK equity managers in the industry and has a bottom-up approach that attempts to tune out macro noises when making investment decisions.
Since the turn of the century, the manager has made the average investor in his funds 239.28 per cent, according to FE Analytics.
MFM Slater Income has a bias to mid-caps but its largest position is in Royal Dutch Shell. Its top five is completed by Marston's, Photo-Me International, Standard Life and Costain Group. The largest sector bet is to real estate, followed by financial services and support services.
Slater’s MFM Slater Recovery and MFM Slater Growth funds are also the first and second best performing funds in the IMA UK All Companies sector, although they are not in the top decile for volatility.
MFM Slater Income has a 1.08 per cent OCF with a yield of 3.84 per cent.
When it comes to the IMA Global Equity Income sector, Premier Global Utilities Income is the member posting first decile returns and volatility, topping the peer group on both counts. It’s made 15.77 per cent over 2014 so far with 8.10 per cent volatility.
Performance of fund vs sector and index over year to date
Source: FE Analytics
The fund invests in stocks from the global power, water, and other infrastructure sectors with top holdings being SSE, the First Trust MLP and Energy Income fund, China Power International, OPG Power Ventures and National Grid.
Despite its strong year to date returns, Claire Long and James Smith’s fund sat in the third quartile in 2013 and the fourth quartile in both 2012 and 2011.
Earlier this year, Smith told FE Trustnet that utilities are one of the few sectors that can protect investors from rising interest rates. He notes that interest rate rises will come if inflation picks up and points out that utilities are able to pass this on to consumers.
Premier Global Utilities Income has a 1.70 per cent OCF and yields 4.62 per cent.
As the year to date is a very short time frame on which to judge funds, a future series from FE Trustnet will look at the few funds that have achieved similarly strong return and volatility profiles over the longer term.
