UK equity income funds such as Premier Income, Trojan Income and Jupiter Income Trust have consistently protected investors over three-year periods, according to research by FE Trustnet, with some limiting their loss-making periods to just of half of the market’s.
Many investors argue that the key to long-term success is minimising losses in challenging markets as this means that less ‘lost ground’ has to be made up when things are in their ascendancy. With this in mind, we have been looking at funds that have gone through the fewest three-year periods in negative territory.
In a previous article, we found that Fidelity Special Situations, Investec UK Special Situations and CF Lindsell Train UK Equity were some of the IA UK All Companies funds that have minimised their losses over rolling three-year periods, but we now turn our attention to the IA UK Equity Income peer group.
Rolling 3yr returns of sector vs index over 60 quarters
Source: FE Analytics
Our study looks at the rolling three-year returns over 60 quarterly periods starting 1 April 1999 to 31 March 2002 and ending 1 January 2013 to 31 December 2016. It shows that the average IA UK Equity Income fund has been in loss-making territory for 16 of the 60 periods examined – or 27 per cent of the time – compared with 18 periods (or 30 per cent of the time) for the FTSE All Share.
When we look at things on an individual fund level, we find that seven of the 10 IA UK Equity Income funds with a track record spanning the whole period examined have fewer loss-making three years than the market. Two match the FTSE All Share with 18 periods in the red while one has underperformed the index.
Furthermore, all 10 of these funds have a maximum three-year loss lower than the market’s, which stands at 39.35 per cent. The average for this group is just 29.68 per cent, while the fund with the best record posted a maximum loss of only 24.40 per cent.
The table below shows how these 10 funds have performed over the 60 three-year periods we examined.
As can be seen, Premier Income and Premier Monthly Income hold the top two spots after being hit by falls in just nine of the three-year periods – half of what was witnessed in the index.
Source: FE Analytics
Both funds are managed by Chris White, who has been at the helm since December 2010. In the decade prior to White, the funds had a number of managers including UK equity income heavyweights Leigh Harrison and Bill Mott.
Of the two, the £383.9m Premier Income fund has made the highest total return across the full period examined in study. It made 328.38 per cent between 1 April 1999 and 31 December 2016 while Premier Monthly Income is up 314.51 per cent; in comparison, the FTSE All Share is up 138.72 per cent and the average IA UK Equity Income fund made 188.26 per cent.
M&G Charifund, BlackRock UK Income, Jupiter Income Trust, Smith & Williamson UK Equity Income and CF Canlife UK Equity Income were all hit by fewer three-year losses than the FTSE All Share.
Only Allianz UK Equity Income has made losses when the market didn’t. The two periods when the fund made a three-year loss and the FTSE All Share did not occurred at either side of the global financial crisis.
Going back to 1 April 1999 did reduce the number of eligible funds by quite a degree, so we re-ran the figures to show three-year losses over the past 34 quarterly periods (therefore capturing the financial crisis). Over this time, the FTSE All Share was in the red for eight of the periods but the average fund underperformed by making a loss in nine.
Source: FE Analytics
Widening the study meant that 22 funds had a long enough track record for inclusion but, as the table shows, one stands out.
Trojan Income, run by FE Alpha Manager Francis Brooke, has made a loss in only three of the 34 periods looked at – and the maximum three-year loss incurred over this time frame was just 7.36 per cent.
Like all of the funds managed by Troy Asset Management, Trojan Income is run with capital preservation at the forefront of the manager’s mind. Since launch in September 2004, the £3.2bn fund boosts the IA UK Equity Income sector’s lowest maximum loss, maximum drawdown and annualised volatility as well as its highest risk-adjusted returns as indicated by the Sharpe ratio.
Funds that were hit by fewer loss-making periods than the FTSE All Share (but were still in the red twice as often as Trojan Income) include Unicorn UK Income, JOHCM UK Equity Income and BlackRock UK Income.