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The top-performing UK equity income funds advisers are ignoring

28 September 2015

In the first of a new series, FE Trustnet highlights three UK equity income funds which have consistently outperformed but are among the least viewed by our readers over the past 12 months.

By Alex Paget,

News Editor, FE Trustnet

Rightly or wrongly, investors tend to flock towards the same funds in a sector as – whether it is due to a strong track record, a star manager or a group’s sizable marketing budget – assets usually flow towards the same names.

While that trend is easily spotted by a fund’s surging AUM, we at FE Trustnet can also see which are the most popular funds in a sector by analysing our website’s traffic and seeing which portfolios have attracted the most readers.

By extension, it is also interesting to see the funds that most of our readers are ignoring and, by following the crowd, are potentially missing out on attractive investment opportunities.

In this series of articles, we will be doing just that and so we start with the highly popular UK equity income space.

According to our research, the 10 most viewed UK equity income funds on FE Trustnet by our adviser audience over the past year include the most well-known names in the peer group such as CF Woodford Equity Income, Invesco Perpetual High Income and Standard Life Investments UK Equity Income Unconstrained.

 

Source: FE Analytics

Again, it is understandable that they have proven to be so popular given their performance and the quality of their respective management teams. However, the large majority of those funds are now at a significant size having seen vast inflows over the last few years.

Therefore, for those advisers and investors who want to differentiate themselves from the crowd, here we highlight three highly-rated UK equity income funds that have had some of the fewest ‘clicks’ over the past 12 months.

 

Man GLG UK Income

One of which is the five crown-rated GLG UK Income fund, which despite its FE Alpha Manager Henry Dixon is among the list of least popular portfolios with our adviser audience.

Thanks to Dixon, the nimble £81m fund is a value-orientated fund as the manager concentrates on companies which have fallen out of favour with the wider market but he thinks are due a turnaround.

Dixon is best known for his work on the FP Matterley Undervalued Assets fund and his current Man GLG Undervalued Assets fund, but the performance of the group’s income offering has improved since the manager took charge in November 2013.

Over that relatively short period of time, Man GLG UK Income has been a top quartile performer in the sector with returns of 16.85 per cent. The FTSE All Share has actually lost money over that time as it is down 1.63 per cent.

Performance of fund versus sector and index under Dixon

 

Source: FE Analytics

The fund was top quartile last year and is currently comfortably outperforming again in 2015 with its gains of 8 per cent. Its performance this year has been due to Dixon’s ability to protect capital, as the fund has lost roughly half the amount of the FTSE All Share during the recent correction.


 

Nevertheless, due to his style, Dixon says he has been using the falls to add to new and existing holdings within the fund.

“Given the volatility in the month we were keen to be front footed with additions to existing positions which have the benefit of this financial strength,” Dixon (pictured) said.

“We also added to Rio Tinto which on current commodity prices enjoys a high single-digit free cash flow and a sector leading balance sheet. We remain alert to further investment possibilities within the commodities sector given the carnage but the combination of business models that are cash generative in the current environment and have sound finances are not overwhelming us.”

Dixon currently holds 38.15 per cent in the FTSE 100, 36.22 per cent in the FTSE 250, 11.25 per cent in small-caps and more than 10 per cent in cash and other liquid assets. The fund currently yields 4.28 per cent and has a clean ongoing charges figure (OCF) of 0.99 per cent.

 

R&M UK Equity Income

The £240m R&M UK Equity Income fund is another which has had little adviser traffic over the past year, despite the fact it is helmed by FE Alpha Manager Daniel Hanbury.

He took charge of the fund in August 2013, though the fund was initially launched in February 2009. Hanbury, like the other R&M managers, uses an in-depth quant screen to build the portfolio and FE data suggests this has so far worked.

According to FE Analytics, the fund has returned 8.66 per cent since Hanbury has been manager while the FTSE All Share has returned exactly 0.00 per cent. It is slightly trailing the IA UK Equity Income sector over that time, though.

Performance of fund versus sector and index under Hanbury

 

Source: FE Analytics

Since the fund was launched, on the other hand, it has been a top quartile performer and beaten the FTSE All Share by close to 35 percentage points with returns of 132.67 per cent using the same strategy.

As a result, the team at Square Mile think it is a good option for UK equity income investors.

“A good quant system is rarely sufficient in itself to generate outperformance but fortunately any investors into the fund are placing themselves in Mr Hanbury's capable hands. Ultimately, Mr Hanbury follows a disciplined investment process when looking at stocks, which is more than just focused on the market's highest yielding companies,” Square Mile said.

R&M UK Equity Income currently yields 4 per cent and Hanbury is primarily invested in large-caps. His largest active bets include BHP Billiton, Smiths, Aviva and Phoenix Group. Its OCF is 0.94 per cent.

 

Liontrust Macro Equity Income

While Dixon and Hanbury haven’t been in charge of their funds for a great deal of time, it is surprising to see that few advisers have viewed the Liontrust Macro Equity Income, which is headed-up by the FE Alpha Manager ‘hall of famer’ duo of Jan Luthman and Stephen Bailey.

The managers are among some of the longest serving in the peer group, having launched the £560m fund in October 2003.


 

According to FE Analytics, it has been the best performing portfolio in the sector over that time with gains of 209.07 per cent beating its benchmark – the FTSE All Share – by more than 75 percentage points.

Performance of fund versus sector and index since launch

 

Source: FE Analytics

It is also comfortably outperforming the index over one, three, five and 10 years as it has outperformed in eight out of the last 10 calendar years.

As the fund’s name suggest, Bailey and Luthman take a global thematic approach to the market and will identify growth trends both here and around the world and highlight companies which will either benefit or hindered by them.

The FE Research team think it is an interesting offering, noting that the portfolio is a blend of large and smaller companies. They say it tends avoid some of the most popularly held stocks in the sector (its top 10 include British Land, Paypoint and Pfizer) meaning that Luthman and Bailey produce a relatively diverse stream of income.

“The best way to look at the fund is over a long period: the themes that the managers identify are meant to change society, which takes a long time. The managers do not focus on short-term losses because they are confident they can be recovered,” FE Research said.

Liontrust Macro Equity Income yields 4.42 per cent and has an OCF of 0.9 per cent.

 

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.