Premier Income, JOHCM UK Equity Income and Marlborough Multi Cap Income are among the 10 UK equity income funds to have offered a higher than average yield over the past 15 quarters, according to the latest FE Trustnet study, though not all have managed to pay out high levels of income over that time. 
The ultra-low rate environment and an ageing population has meant yield-producing funds have become increasingly popular, especially those that focus on equities as managers in the space – in theory – should be able to grow income distributions over time.
The issues surrounding yield and income have been major talking points of late as well, with numerous funds having been kicked of the IA UK Equity Income sector after failing to hit the necessary yield level (110 per cent of the FTSE All Share over rolling three-year periods) to be in the peer group.
While a number of those funds have a good record of growing income (and delivering a high level of income over time), their low current yields compared to both the index and sector average do present an issue for a first time investor.
That is because while the published yield figure is largely irrelevant to long-term investors, it can make a big difference to those who are buying for the first time as it is often a gauge of value. For example, a lower yield can be down to strong unit price performance which, in turns, means investors are unable to purchase as many units and therefore will receive a lower overall level of income.
With this in mind, in this study we wanted to highlight the UK equity income funds (both current members of the IA UK Equity Income sector and its exiles, though we have purposely omitted funds that extensively use covered call options) that have consistently offered a high yield over the medium term.
To do this, we analysed each fund’s published yields at the start of each of the last 15 quarters – taking the study back to January 2013.
The UK equity income funds with the most consistently high yield
Source: FE Analytics *figures based on a £10,000 investment in Jan 2013
The table above highlights the 10 funds that have had a higher yield than the sector average in each of the past 15 quarters, as well as their average yield over that time, their total income pay-outs on £10,000 since 2013 and their capital growth on £10,000 over that time.
Featuring on the list with the highest average yield over the period (4.72 per cent) is Premier Monthly Income. Indeed, as the graph below shows, its yield has not dropped below 4.2 per cent over the period in question.
Fund and sector’s yield since Jan 2013
Source: FE Analytics
Managed by Chris White, the fund has a clear value tilt – which helps generate its high yield – with the likes of Royal Dutch Shell, Lloyds and Centrica featuring in its top 10.
The £210m fund has outperformed both the IA UK Equity Income sector and its FTSE All Share benchmark from a total return point of view since January 2013, with White delivering capital growth ahead of the sector average over that time.
FE data shows Premier Monthly Income’s high yield has also led to large dividend pay-outs over time. Indeed, investors who bought £10,000 of units in January 2013 would have earned £1,555 in income by the end of 2015 – which is £250 more than the sector average, ranking it fifth on the list.
White’s Premier Income fund, which is a mirror image of his Monthly Income fund but only pays-out twice a year, is also on the list of consistent high yielders. Again, it has paid out more in income and grown capital more effectively than the sector average.
Another value-focused fund to feature is Clive Beagles and James Lowen’s £2.6bn JOHCM UK Equity Income fund.
Its average yield of the past 15 quarters has been 4.21 per cent, which is 36 basis points higher than the sector average. The yield on the fund has been gradually rising over recent years as Beagles and Lowen have turned their attention to bombed out mega-cap stocks, though they have still managed to distribute one of the highest levels of total dividends over the period as well.
Some of the other funds to have consistently produced a high yield – and pay out more than the average in total dividends – include Marlborough Multi Cap Income, M&G Charifund and Castlefield B.E.S.T Income.
It is interesting to note, however, that the study shows a high yield doesn’t always lead to big dividend payments – which is understandable given a yield figure can jump around depending on a fund’s unit price performance as well as its income distribution.
For example, two of the funds on the list have paid out less in income than the sector average – while one is only just ahead of the peer group – despite their high yields over recent times.
An example is the only passive in the space: Vanguard FTSE UK Equity Income Index.
According to FE Analytics, despite its average yield of 4.2 per cent since January 2013 (35 basis points higher than the sector), it has paid out £1,208.46 on £10,000 over that time (which is £100 less than the sector).
It has also underperformed from a capital growth point of view as well.
FE data shows it is a similar situation with CF Canlife UK Equity Income and Threadneedle UK Equity Alpha Income – though the latter has paid out £10 more in income than the sector over the period.
Funds and sector’s yield since January 2013
Source: FE Analytics
Other funds to have posted higher than average yields in at least 12 out of the past 15 quarters include Fidelity MoneyBuilder Dividend, FP Miton Income and MI Chelverton UK Equity Income – all of which have also paid out more in total dividends than the sector as well over that time.
Though this study shows there has been a correlation between high yields and decent dividend payments, it certainly not always been the case.
One of the best examples is with Elite Charteris Premium Income, which has historically had a very high weighting to mining and commodity-related companies.
According to FE data, it has offered a higher yield than the sector average in 13 out of the past 15 quarters meaning its average yield has been 4.04 per cent. However, it has paid out some £200 less in income on £10,000 than its average peer over that time.
Yield and fund’s total returns versus sector since January 2013
Source: FE Analytics
What’s worse though, and as the graph above shows, that yield (and income) has come at the expense of capital.
It has been the worst performer in its sector over the period from a total return point of view as investors who bought £10,000 of units (and were drawing income) would have seen their investment fall to £8,613 while the average capital growth in the peer group has been to £12,532.
Following on from this article, FE Trustnet highlights the UK equity income funds that have consistently yielded less than the market average.
