The popular £3.2bn Threadneedle UK Equity Income fund has seen marginal net outflows over 2016 so far, following on from a bottom-quartile performance in 2015. 
October last year also saw Richard Colwell (pictured) take the sole lead manager role for the fund, with Columbia Threadneedle head of UK equities Leigh Harrison stepping down to deputy manager after five years co-managing the fund.
In 2015 the fund still made a modest, and FTSE All Share beating, return of 3.62 per cent but this relatively speaking was in contrast to every other year under Colwell when the fund has been either top or second quartile.
Performance of fund, sector and index in 2015
Source: FE Analytics
Over 2016 so far, however, the fund has jumped back into the top quartile, making a 0.56 per cent gain when its average peer has lost 2.19 per cent.
Longer term performance is also healthy. Colwell has headed Threadneedle UK Equity Income since September 2010, over which time the fund has been the ninth best performer in the 68-strong sector.
According to FE Analytics, the fund has returned 87.30 per cent since Colwell took charge compared to a 65.57 per cent average return in the IA UK Equity Income sector and a 47.84 per cent gain in the FTSE All Share over the same period.
Performance of fund, sector an index under manager tenure
Source: FE Analytics
A reality of investing is that no manager consistently stays ahead of their peers but such times can pose the question of whether it is a good time to buy or sell. In this article we hear from the experts as to what they think investors should do.
A recent FE Trustnet study found the fund is the most popular UK equity income fund with multi-asset managers in the Investment Association universe.
It found some 29 multi-asset portfolios and funds of funds managers have it as a top 10 holding.
Chelsea Financial managing director Darius McDermott says the portfolio is a clear ‘buy’.
“We are big fans of this. Colwell is an extremely experienced manager. Despite the success of the fund, he is very humble, something which is always a positive. The fund has a patient high conviction approach and has proven to be extremely consistent,” he said.
Biased towards the larger cap end of the UK market, Colwell also aims to run a somewhat contrarian portfolio to help with dividend growth and an attractive yield.
His current top 10 largest positions – shown below – currently includes the more expensive end of the market including the likes of Unilever and GlaxoSmithKline as well as the likes of Morrisons, Shell and Centrica which have all come under significant pressure in the last two years or so thanks to structural challenges.
Source: FE Analytics
Tilney Bestinvest’s Jason Hollands says he is a huge fan of the Threadneedle UK Equity Income fund and thinks it should outperform over the longer term.
“Colwell is a pragmatic investor who very much manages this fund on a total return basis, which means he is prepared to occasionally invest in lower yielding companies where he sees a catalyst for a changing.”
“He’s also prepared to back unloved companies which offer value with a current example being supermarket Morrisons – that approach can sometimes require a bit of patience but the overall performance of the fund has been very good over multiple time periods and we would use this fund as a core holding for UK equities.”
Adrian Lowcock, head of investing at AXA Wealth, is also a fan and thinks it should do well in the future.
“Cowell and (former co-manager) Leigh Harrison have added a lot of value over the years and performance has been strong recently. The concentrated nature of the fund demonstrates the managers only invest in high conviction ideas.”
“They invest in large cap, high yielding companies to provide a stable core to the fund and invest in satellite company’s which are either out of favour or offer the potential to grow their dividend. Currently the fund is quite defensively positioned with exposure to pharmaceuticals – 14 per cent – as well as having 8 per cent in utilities.”
“They use their big picture macroeconomic view to drive portfolio construction but only select stocks which they believe will benefit from their economic outlook.”
Square Mile Research rates the fund highly alongside Columbia Threadneedle’s UK equity team and thinks Harrison’s stepping back as co-manager is no cause for concern.
“We do not see the change to the management structure as material – Mr Colwell had effectively been managing the fund on a day-to-day basis for some time,” its analysts said.
“This is a sensibly run UK equity income fund, which has a bias towards larger companies. Although Columbia Threadneedle is a large institution, the investment teams act with a fair degree of autonomy and the managers are encouraged to run their funds based on their own convictions.”
The fund has a clean ongoing charges figure (OCF) of 0.82 per cent and a current yield of 4.30 per cent.
