Unicorn UK Income and PFS Chelverton UK Equity Income have topped Sanlam Private Investments’ ‘White List’ in the latest Income Study, pipping their larger well-known peers such as Trojan Income and Fidelity Moneybuilder Dividend to the post.
The second half of 2015 proved to be a particularly challenging environment for income investors as a result of low-yielding bonds and concern that some large dividend-paying stocks could be forced to cut payouts to shareholders.
This, combined with a series of macroeconomic headwinds including the US rate rise, China’s growth slowdown and the continuing collapse of commodity prices, has left many investors feeling cautious as we head into the second month of the new year, with the FTSE 100 down by 4.92 percentage points year-to-date.
Despite dividend yields having to face various trials and tribulations last year though, it’s important to note that the IA UK Equity Income sector average still outperformed the IA UK All Companies sector and the FTSE 100 index in 2015 by 1.34 and 7.52 percentage points respectively, providing a total return of 6.2 per cent.
Performance of sectors vs index in 2015
Source: FE Analytics
However, the risk of some of the market income payers cutting their dividends this year have intensified, adding to the concerns of investors in 2016.
“Investors seeking income from the stock market in 2016 must consider not only headline yields, but also the sustainability of dividends,” Sanlam’s report stated.
“The price volatility that we highlighted in our mid-year review has continued, adding to the challenge of finding suitable stocks. Many investors prefer to hand this task to a fund manager with a proven track record.”
As such, its Income Study is aimed at highlighting the funds helmed by managers that have delivered both strong returns irrespective of market conditions and have successfully produced a stream of income for investors over the long term.
In the firm’s ‘White List’, Fraser Mackersie and Simon Moon’s Unicorn UK Income fund has taken the top spot, knocking PFS Chelverton UK Equity Income down to second place.
The fund, which has five FE crowns, has been managed by its current duo since the passing of John McClure in 2014. Over this time frame it has provided a total return of 4.04 per cent, narrowly underperforming its peer average by 79 basis points.
In 2015, however, the fund’s focus on small and mid-cap stocks paid off as it provided a return of 13.27 per cent, more than doubling its sector average and outperforming its FTSE All Share benchmark more than 13 times over.
Performance of fund vs sector and benchmark in 2015
Source: FE Analytics
The £646m fund is in the top quartile of Sanlam’s study for the income it has generated over five years and currently yields 3.83 per cent. Unicorn UK Income has a clean ongoing charges figure (OCF) of 0.81 per cent.
Also in Sanlam’s top quartile for its five-year income is PFS Chelverton UK Equity Income, which has also been bolstered by David Horner and David Taylor’s bias towards smaller companies and AIM-listed stocks.
While it is in the third quartile for its total return over six months, it is in the top decile over the last year with its return of 6.65 per cent, which is an outperformance of 8.66 percentage points compared to its average peer.
The £411m fund, which is also five crown-rated, has a clean OCF of 0.92 per cent and yields 4.67 per cent.
The highest climber compared with Sanlam’s list in July last year is Fidelity MoneyBuilder Dividend, which has jumped from eighth place on the firm’s Grey List – home to funds that aren’t on the top-performing White List or on the Black List of underperformers – to fourth place on the White List this year.
“[It’s] a familiar name to the White List that temporarily drifted into the Grey List before bouncing back in this study with solid recent returns and low volatility over the last five years,” the report said.
“Unlike many of the other top performers in this year’s study, Clark’s fund does not display a strong bias to mid and small capitalisation companies.”
Michael Clark’s four crown-rated fund holds more than 5 per cent weightings in Imperial Tobacco Group, AstraZeneca and GlaxoSmithKline and also has the likes of BT, HSBC and British American Tobacco in its top 10 holdings.
Not only has it lost less than a quarter of the amount that its average peer has over the last year, it is also in the top decile over the last six months for its loss of 0.87 per cent compared its sector average’s loss of 4.29 per cent.
It is in the top quartile for its annualised volatility and maximum drawdown, which measures the most money an investor would have lost if they’d bought and sold at the worst possible times, over three years.
The £1bn fund has a clean OCF of 0.67 per cent and yields 4.16 per cent.
Other funds that have made it onto the White List this year and deserve an honourable mention include the likes of Francis Brooke's Troy Trojan Income, Thomas Moore’s SLI UK Equity Income Unconstrained, Eric Moore and Gervais Williams’ Miton Income and Chris White’s Premier Monthly Income funds.
Table of top 10 White List funds
Source: FE Analytics
However, there are a number of funds that have fallen from the White List to the Grey List over the last six months.
These include the likes of Old Mutual UK Equity Income, which moved from sixth place in the list of top-performers to 15th place in the Grey List, and JOHCM UK Equity Income, which fell from 10th place on the White List to 20th place on the Grey List.
“Stephen Message’s Old Mutual UK Equity Income fund has experienced one of the more dramatic falls in our rankings since the last study, moving from the White List to the bottom half of the Grey List, as the concentrated portfolio experienced its first poor year since 2011,” the report continued.
“The JOHCM UK Equity Income fund, manged by Clive Beagles and James Lowen, experienced a similar fall. Interestingly, despite the two funds underperforming the UK Equity Income sector over the year, both outperformed the broader UK equity market, demonstrating the resilience that the sector can provide.”
Over on the funds that reside on the Black List for their poor performances, Schroder Income Maximiser is bottom of the pack having fallen from the Grey List over the last six months despite having the highest yield of any fund in the study at 6.92 per cent.
Managed by Thomas See since 2009, the two crown-rated fund has found itself in the bottom decile over one and three years as well as over three and six months, and is in the bottom quartile over five years.
In contrast, the £308m BlackRock UK Income fund has begun to improve over Mark Wharrier’s tenure, having jumped from the third quartile over three years to the second quartile over the last 12 months.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
“Despite continued improved performance under Wharrier, the BlackRock UK Income fund has again not quite escaped the clutches of the Black List,” the report said.
“With performance now top of the Black List for both of the most recent discreet years, the manager is now in a good position to take his fund out of the bottom 14 if he can continue to perform.”
Other funds that have found themselves black-listed by Sanlam include Jupiter Income Trust, M&G Dividend, Neptune Income and Allianz UK Equity Income.
Table of top 10 funds in Black List
Source: FE Analytics
