The FTSE All Share performed very differently in the two years. During 2013 growing investor sentiment and steadily improving economic data led to a 20.81 per cent gain; in 2013 a myriad of worries including weakness in the eurozone, the plunging oil price and geo-political tensions led to a return of only 1.18 per cent.
As an article last week showed, the average fund in the IA UK All Companies sector managed to outperform in the bull market of 2013, rising 26.21 per cent, but lagged in the more challenging 2014 with a 0.64 per cent return.
Some 88 out of the 273 funds in the IA UK All Companies sector – or just under one-third of the peer group – were able to beat the All Share in each of the two calendar years.
Looking at IA UK Equity Income, FE Analytics shows 49 funds – or 54 per cent of the sector – outperformed the FTSE All Share in both 2013 and 2014. The table below shows the top 10 funds on a two-year cumulative view.
Source: FE Analytics
As you can see, FE Alpha Manager Chris Reid and Yuri Khodjamirian £640m Majedie UK Income fund tops the list with its two-year return of 53.34 per cent. It was the highest returning fund in 2014 with a 10.29 per cent gain and came in fifth place in 2013 after making 39.03 per cent.
It has a high-conviction portfolio of 56 holdings, with 39.6 per cent in the FTSE 100, 35.6 per cent in the FTSE 250 and 5.3 per cent in small-caps, with 16.5 per cent in international stocks. It’s largest holdings are Friends Life, Direct Line Insurance and AstraZeneca.
The next two funds on the list also invest across the cap spectrum, as their names suggest, and have performed strongly over recent years thanks to their focus on the smaller end of the market.
Marlborough Multi Cap Income, headed by FE Alpha Manager Giles Hargreave and Siddarth Chand Lall, is in second place. It has only 7.6 per cent in mega and large caps, with 31.3 per cent in mid-caps, 37.2 per cent in small-caps and 20.6 per cent in micro-caps.
Since its launch in July 2011, the fund is the best performer of the IA UK Equity Income sector after rising 71.80 per cent. In contrast, the FTSE All Share has risen 27.86 per cent while the average fund in the sector has returned 37.45 per cent.
Gervais Williams and Martin Turner's £372.2m CF Miton UK Multi Cap Income is the second best fund in the sector since it launched in October 2011 with an 82.09 per cent return, beaten only by the Marlborough offering. It has 12.2 per cent in the FTSE 100 with its largest weighting being the 38 per cent in the FTSE AIM.
The fund proved immensely popular with investors and soft-closed in November 2013. However, as FE Trustnet recently revealed, it has since re-opened after the managers said there was additional capacity to take advantage of “compelling” opportunities being seen lower down the cap spectrum.
Performance of funds vs index over 2yrs
Source: FE Analytics
Majedie UK Income has a clean ongoing charges figure (OCF) of 0.78 per cent and yields 3.50 per cent. Marlborough Multi Cap Income charges 0.80 per cent with a 4.27 per cent yield, while CF Miton UK Multi Cap Income has a 0.83 per cent clean OCF and yields 3.80 per cent.
One of the reader requests for this article was to cross-check the outperformers over two years to see how many are also first decile over three and five years. None of the three funds above have a five-year track record but are top decile over three years.
Our data shows that three UK equity income funds of the 88 outperformers have achieved first decile returns over three and five years. At 3.3 per cent of the peer group, this is less than the 4.5 per cent of outperformers found in the IA UK All Companies sector.
Thomas Moore’s £713m Standard Life Investments UK Equity Income Unconstrained fund leads these on a two-year view. Over three years the fund has 80.98 per cent while it’s up 101.53 per cent over five years.
The fund is highly rated by analysts, winning five FE Crowns for superior performance in terms of stock picking, consistency and risk control over recent years and being rated ‘A’ by Square Mile which says it could be a good option for investors seeking “a truly actively managed UK equity income strategy which pays little attention to the underlying benchmark.”
Next is Martin Cholwill’s £1.6bn Royal London UK Equity Income fund, which also holds five FE Crowns and has an ‘A’ rating from Square Mile. It also appears on the FE Research team’s Select 100 list of preferred funds, where its track record in consistently producing better than average returns is highlighted.
Since Cholwill took over the fund in March 2005 it has returned 148.06 per cent, against a sector average of 93.04 per cent and an advance in the All Share of 98.76 per cent. This makes it the peer group’s second best performer over this time frame, with only Unicorn UK Income’s 195.44 per cent gain beating it.
Charles Montanaro's £77m Montanaro Equity Income is the final fund on the list that are first decile over three and five-year periods. The four crown-rated fund is ranked ninth in the sector over three years and fifth over five, putting it one place behind Royal London UK Equity Income in both.
Montanaro managed the fund between November 2006 and December 2011. It was managed by Ralph Singleton from January 2012 to December 2012, after which Montanaro resumed control of the portfolio. Montanaro specialises in smaller companies and only 14 per cent of his portfolio is invested in stocks with a market cap over £2.5bn.
Performance of funds vs index over 5yrs
Source: FE Analytics
Standard Life Investments UK Equity Income Unconstrained’s OCF is 1.15 per cent and it yields 3.95 per cent, while Royal London UK Equity Income charges 0.67 per cent and yields 3.54 per cent. Montanaro Equity Income has an OCF of just 0.22 per cent with a 3.9 per cent portfolio yield quoted on its factsheet.