Star managers such as Neil Woodford and Richard Woolnough are continuing to gain interest in spite of the massive size of their flagship funds.
FE Trustnet takes a look at the five most popular funds on the site over the last six months – each of which feature in FE’s AFI model portfolios.
Invesco Perpetual High Income
Unsurprisingly, the five crown-rated Invesco Perpetual High Income fund has been the most viewed portfolio on FE Trustnet over the last six and 12 months, suggesting its massive size has not curtailed investor interest in it.
| Name | Invesco Perpetual High Income |
|---|---|
| Size | £12.4bn |
| Min Investment | £500 |
| TER | 1.69% |
| Yield | 3.42% |
| Manager | Neil Woodford |
| FE Crown Rating | 5 |
Source: FE Analytics
Under FE Alpha Manager Neil Woodford’s guidance, the £12.4bn fund has made 1,437.36 per cent for investors since 1989. The UK Equity Income sector is up 508.43 per cent over the period.
Performance of fund vs sector since start of data
Source: FE Analytics
As a result of its size, the fund is primarily made up of blue chip defensive companies such as AstraZeneca, GlaxoSmithKline and British American Tobacco.
Eighteen funds in the IMA universe hold the popular fund, including Threadneedle’s range of managed portfolios and three Hargreaves Lansdown multi-manager products – Equity & Bond, Income & Growth and Special Situations.
Hargreaves Lansdown’s Richard Troue says he would still recommend the fund to investors in spite of its massive size, because he believes Woodford has a repeatable process that will continue to add value over the long-term.
"There’s certainly a place for the Invesco High Income fund in most portfolios," he said.
"It is a big fund, there’s no denying that, so it might not be as nimble as it used to be. But I don’t think it needs to be. Neil Woodford isn’t the type of investor that looks to switch around his positioning on a short-term basis."
"He has the ability to go on and achieve good performance in the future as he has done in the past. We still believe he’ll be there running [the fund] for some years to come. We’re very positive about it."
Troue adds that Invesco Perpetual High Income is an ideal core holding and suggests existing investors diversify the rest of their portfolio with funds such as JOHCM UK Equity Income or Newton Asian Income, which invest in less defensive areas.
Newton Asian Income
Income is undoubtedly a key theme for investors in a world where rising inflation and poor interest rates on cash are putting a strain on wealth.
In an effort to find yield, investors are looking outside the UK to the faster-growing emerging markets.
As the second most popular fund among FE Trustnet users over the last six months, the Newton Asian Income portfolio certainly fits the bill.
| Name | Newton Asian Income |
|---|---|
| Size | £3.4bn |
| Min Investment | £1,000 |
| TER | 1.66% |
| Yield | 4.17% |
| Manager | Jason Pidcock and Caroline Keen |
| FE Crown Rating | 5 |
Source: FE Analytics
Not only is the five crown-rated fund yielding 4.15 per cent – higher than the majority of the funds in the UK Equity Income sector – it has also delivered top-quartile returns over one, three and five years.
The fund has significantly beaten the IMA Asia Pacific Excluding Japan sector over each period.
For investors who already hold a UK Equity Income portfolio, it offers a good way to diversify their equity income exposure.
Performance of fund vs sectors over 5 yrs
Source: FE Analytics
The fund is headed up by Jason Pidcock and Caroline Keen, who Troue says have been doing an exceptionally good job providing income over the past several years.
"A lot of investors are looking overseas to diversify away from UK equity income," he added.
"Companies [in Asia] are realising the merits of investing in their business and rewarding shareholders, and the team at Newton have shown a tremendous ability to capitalise on that."
Nineteen funds in the IMA Universe hold the income portfolio in their top-10, including the T Bailey Dynamic Cautious Managed fund and Margetts’ range of multi-manager portfolios.
M&G Strategic Corporate Bond
"Clearly there is an income theme and investors are doing everything they can to get an attractive yield from their investments," Troue continued.
M&G Strategic Corporate Bond, the third most popular fund on FE Trustnet, is certainly an income-play, although Troue warns yields on corporate bonds have come down and he does not expect that to change any time soon.
| Name | M&G Strategic Corporate Bond |
|---|---|
| Size | £5.6bn |
| Min Investment | £500 |
| TER | 1.16% |
| Yield | 3.19% |
| Manager | FE Alpha Manager Richard Woolnough |
| FE Crown Rating | 4 |
Source: FE Analytics
"We see less value among corporate bonds than we did previously," he said. "The scope for capital growth is limited in that arena now."
However, Troue adds FE Alpha Manager Richard Woolnough and his fixed income team are highly experienced and offer a more macro-oriented approach, which could be comforting in volatile periods.
While the four crown-rated, £5.6bn M&G Strategic Corporate bond fund has delivered top-quartile returns over the last five years, it has only picked up 26.5 per cent over the last three.
The IMA Sterling Corporate Bond sector gained 24.37 per cent over the period.
Performance of fund vs sector over 3yrs
Source: FE Analytics
The fund is also currently one of the lowest yielding in the sector, with a payout of 3.19 per cent. Only six funds in the sector are paying out less.
Seventeen funds hold the M&G portfolio in their top-10, including Aviva Fund of Funds Cautious and Pru’s Cautious and Defensive portfolios.
Liontrust Special Situations
As the only growth-oriented portfolio to make the top-five, the five crown-rated Liontrust Special Situations fund is a standout performer in the IMA UK All Companies sector.
| Name | Liontrust Special Situations |
|---|---|
| Size | £761.9m |
| Min Investment | £1,000 |
| TER | 1.92% |
| Yield | 0.66% |
| Manager | FE Alpha Managers Anthony Cross and Julian Fosh |
| FE Crown Rating | 5 |
Source: FE Analytics
Over the past five years, it has made 109.66 per cent, beating both the sector and the FTSE All Share, which made 32.82 per cent and 36.03 per cent respectively over the period.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
The fund is mixed between steady blue chip names such as GlaxoSmithKline and alcoholic beverage company Diageo, but looking deeper into the portfolio reveals some of the managers' true value-adds.
"We are quite positive on the fund," Troue said.
"The managers have developed their own slightly unique approach which has worked very well over the past few years."
Troue adds that unlike the other funds on this list, it is relatively small and nimble, meaning the managers can add value through stock selection.
"For investors looking for exposure to quality UK companies, it is one we favour," he added.
The Special Situations fund is held by six funds in the IMA universe.
M&G Optimal Income
Much like its corporate bond counterpart, FE Alpha Manager Richard Woolnough’s fund is a cautious play for investors seeking income.
| Name | M&G Optimal Income |
|---|---|
| Size | £12.2bn |
| Min Investment | £500 |
| TER | 1.41% |
| Yield | 3.00% |
| Manager | FE Alpha Manager Richard Woolnough |
| FE Crown Rating | 3 |
Source: FE Analytics
The fund is easily the most popular in model portfolios and multi-manager products: 33 funds in the IMA universe list it as one of their top-10 holdings.
Troue adds it takes more of a more macro-based approach and will suffer from depressed yield in the fixed income sector.
The giant fund is a top-quartile performer over three and five years, but has fallen behind the sector slightly over one year.
Over the last half-decade, the fund has picked up 68.14 per cent, compared with 36.35 per cent from the IMA Sterling Strategic Bond sector.
Performance of fund vs sector over 5yrs
Source: FE Analytics
The defensive nature of the Optimal Income fund has also left it one of the lowest-yielding in the sector, at just 3 per cent.
The highest-yielding fund is Legg Mason Income Optimiser, with a payout of 7.3 per cent, according to FE Analytics.