The IA UK Equity Income sector is one of the most popular in the Investment Association universe and is home to some of the industry’s top performers, but research by FE Trustnet also shows a number of its members are at the bottom of the peer group for many closely watched metrics.
In an article earlier this week we highlighted the UK equity income funds that were in the upper deciles when it came to five-year returns, performance in the three most recent individual calendar years, annualised volatility, maximum drawdown, alpha generation, Sharpe ratio, downside capture and upside capture relative to the FTSE All Share index.
In that study, we found that the likes of Royal London UK Equity Income, Trojan Income and CF Miton UK Multi Cap Income have some of the sector’s best average decile rankings on these 10 metrics.
Performance of funds vs sector and index over 5yrs to end of 2016
Source: FE Analytics
However, we also ran the numbers to find out which funds have the worst average decile ranking when it comes to the various risk and return measures.
Our research shows that sitting at the bottom of the table with an average decile ranking of 9 is HC Charteris Premium Income, which holds one FE Crown.
This £11.5m fund is in the IA UK Equity Income sector’s bottom decile for its 25.6 per cent five-year return (the lowest in the peer group), alpha generation, annualised volatility, maximum drawdown, Sharpe ratio and downside capture. It is, however, first decile for performance in 2016 when the fund was up 18.12 per cent.
The fund aims to generate a dividend yield of 5 to 6 per cent (it is currently yielding 1.36 per cent). It is running big overweights in basic materials and financials with the likes of Rio Tinto, BHP Billiton and Antofagasta being its largest holdings; these overweights paid off in 2016 but will have contributed to the underperformance in previous years.
Of course, this is not the only fund from the IA UK Equity Income sector to be in the lower deciles for multiple performance factors. The following table shows all the funds with an average decile ranking of 7 or higher.
Source: FE Analytics
Of the 16 funds on the table, five have beaten the FTSE All Share’s 61.84 per cent total return over the five years in question: QAM Downing Monthly Income, Standard Life Investments UK Equity High Income, M&G Dividend, Liontrust Macro Equity Income and Neptune Income.
QAM Downing Monthly Income is the only fund to have beaten the average IA UK Equity Income member, which was up 70.20 per cent. The £13.3m fund made 70.72 per cent over the five years to the end of 2016.
But there are some large funds on the list that have a string of weaker decile numbers on their records.
Halifax UK Equity Income is the biggest fund highlighted in the table. The fund, which has an average decile ranking of 8.5 per cent, runs assets totalling £2.6bn and is sold through Halifax’s in-house advisers.
The one FE Crown-rated fund is in the peer group’s tenth decile for five-year returns, alpha generation, Sharpe ratio and downside capture. This is another fund that performed well in 2016 though, racking up second decile returns (as did Aberdeen UK Equity Income and Scottish Widows UK Equity Income, which are in second and fourth places in the study).
Performance of fund vs sector and index over 5yrs to end of 2016
Source: FE Analytics
M&G Dividend is the second largest fund on the list with assets of £1.3bn; as mentioned this portfolio did outperform the FTSE All Share over the period in question. Its average decile ranking is 7 but it is only in the bottom decile for downside capture.
Vanguard FTSE UK Equity Income Index is the only other fund on the list running more £1bn. The index tracker has an average decile ranking of 7.6 and is in the tenth decile for downside capture and alpha generation. For upside capture, however, it achieved a third decile ranking.