According to the study, the Artemis fund, which is co-managed by Adrian Gosden and FE Alpha Manager Adrian Frost and is now the largest portfolio in the IA UK Equity Income sector, is a top 10 holding with 36 IA funds – three more than the five crown-rated Threadneedle UK Equity Income fund, which was second on the list.
Artemis Income was the most popular fund in the sector when this study was conducted in February last year, though data suggests that the experts have been looking for other opportunities in the UK income space as 52 funds counted in their top 10 then.
Source: FE Analytics
Nevertheless, portfolios which still hold Artemis Income as a top 10 holding include Jupiter Merlin Income – which is headed up by FE Alpha Managers John Chatfeild-Roberts, Peter Lawery and Algy Smith-Maxwell – FE Alpha Manager Bill McQuaker’s Henderson Multimanager Distribution fund and various funds from the Standard Life MyFolio range.
Though the four crown-rated Artemis fund has largely struggled relative to its sector and FTSE All Share benchmark since the period after the financial crisis – mainly as a result of its large-cap defensive bias – its long-term numbers are still strong.
According to FE Analytics, it has been the third best performing portfolio in the sector since Frost took charge in January 2002 with returns of 191.83 per cent, beating the index by close to 75 percentage points in the process.
Performance of fund vs sector versus index since Jan 2002
Source: FE Analytics
The portfolio, which yields 3.76 per cent, is popular with fund managers due to its managers’ experience, the fact it has defended capital during falling markets – it was top quartile in 2008 and 2011 – and as Frost and Gosden have generated high levels of income for unitholders over the years.
The most interesting conclusion to take away from the research, however, is that a high proportion of fund managers have ditched FE Alpha Manager Mark Barnett’s Invesco Perpetual High Income and Income funds – which he took over from Neil Woodford in March last year – over the past 12 months.
Woodford’s decision to leave Invesco Perpetual after 26 years at the group to set up his own asset management company rocked the industry and left investors with the difficult decision of whether to follow the established star manager, back his successor or look for a new fund altogether.
One thing that is certain is that fund managers decided to not stick with Barnett, despite the fact that his two five crown-rated funds – which moved to the UK All Companies sector after failing to meet the equity income sector’s yield target – have performed well since he has been at the helm.
This same study last year showed Invesco Perpetual Income was the third most popular fund with multi-managers, as it featured in 20 top 10s, while the larger High Income fund was the fifth most popular as 19 funds counted it as a top 10 holding.
This time around, however, only eight funds hold Invesco Perpetual Income in their top 10, while FE Alpha Manager Guy Bowles’ £40m Ingenious Global Growth fund is now the only portfolio in the IA universe that holds Barnett’s High Income fund as a top 10 holding.
This is reflected in the fund flows, as our data shows the now £12.6bn High Income was £1bn bigger this time last year while the now £6.6bn Income fund has shrunk by £3bn, even though both have been among the three best performing UK dividend-paying funds and have comfortably beaten the FTSE All Share over the past 12 months with returns of 9 per cent.
Performance of funds versus sectors and index over 1yr
Source: FE Analytics
A large proportion of that money, unsurprisingly, has gone into Woodford’s CF Woodford Equity Income fund, which has already grown to £4.3bn since its launch in June last year and has outperformed the IA UK Equity Income sector over that time with returns of 8.2 per cent.
According to the study, it is now the sixth most popular equity income fund with fund managers as 18 of them count it as a top 10 holding.
But the results of the research suggest that the majority of experts used the large Woodford-induced change in the UK equity income space to look for new opportunities within the sector.
Richard Colwell and FE Alpha Manager Leigh Harrison’s £3.3bn Threadneedle UK Equity Income fund seems to be the major beneficiary, as it has moved from the fourth to the second most popular fund, as the number of portfolios that count it as a top 10 holding has increased from 20 to 33 in the last 12 months.
It isn’t too difficult to see why the fund has built up more of a following recently.
Not only does Threadneedle UK Equity Income offer exposure to UK large-cap dividend-paying stocks, but a recent FE Trustnet study showed it – along with the managers’ more concentrated Threadneedle UK Equity Alpha Income fund – was one of only three portfolios to have beaten the IA UK Equity Income sector and the FTSE All Share in each of the last five years.
The other vehicle to have achieved that feat is Martin Cholwill’s five crown-rated Royal London UK Equity Income fund. Cholwill’s fund has also benefitted from the so-called “Woodford effect” – as its AUM has surged to £1.6bn and it is now the ninth most popular fund on the list as 16 managers hold it in their top 10
FE Alpha Manager Francis Brooke’s Trojan Income fund has seen a big uptick in popularity as well, given that the portfolio it is now a top 10 holding with 23 IA funds – 12 more than this time last year.
The £2bn fund, with its focus on capital preservation and finding a growing source of income via a portfolio of high quality companies, has been top quartile for its returns over 10 years and has also had the lowest maximum drawdown, which measures the most an investor would have lost if they bought and sold at the worst possible times, in the sector over that time at just 25 per cent.
Performance of fund versus sector and index over 10yrs
Source: FE Analytics
Other funds which feature on the list include Jeremy Lang’s Ardevora UK Income fund, Michael Clark’s Fidelity MoneyBuilder Dividend and Liontrust Macro Equity Income, which is headed up by the FE Alpha Manager duo of Jan Luthman and Stephen Bailey.