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The most sold UK equity income funds since Brexit

14 August 2017

FE Trustnet explores the UK equity income sector and uncovers the funds that have suffered the heaviest outflows over the past 12 months.

By Jonathan Jones,

Reporter, FE Trustnet

Artemis Income, Scottish Widows Multi-Manager UK Equity Income and Majedie UK Income are among the most sold funds in the IA UK Equity Income sector since Brexit, according to data compiled by FE Trustnet.

UK funds have come in for a tough time over the past 18 months with the asset class losing £4.9bn in assets under management (AUM) in 2016.

Many investors were concerned by the Brexit vote in June last year, with European equities the second-most sold region.

The equity income sector has come under particular scrutiny after poor performance last year as just six funds out of 83 outperformed the FTSE All Share in 2016.

Indeed, the sector average return of 8.85 per cent was 7.9 percentage points behind the index, as the below graph shows.

Performance of sector vs index in 2016

 

Source: FE Analytics

This was in part due to the return to favour of the financials and mining stocks, many of which had scrapped or cut their dividends in 2015 and as such many were not eligible for these income funds.

Below, we look at the five funds that have been most affected by the negative sentiment towards UK equities and, more specifically, the IA UK Equity Income sector.

 

Artemis Income

The most sold fund over the 12 months to 30 June 2017 is the four FE Crown-rated Artemis Income run by Adrian Frost and Nick Shenton.

The fund had been co-managed by Adrian Gosden before his surprise departure in June 2016 just days before the EU referendum.

Frost initially launched the strategy in January 2002 and Gosden was brought in as his co-manager in October 2003.

In recent years the fund had attracted significant inflows despite relatively lacklustre performance. Indeed, despite outperforming FTSE All Share between 2013 and 2015, the fund had not been a top quartile performer in any of the last three full calendar years.

Last year it lagged the benchmark, however, it has returned to the top quartile of the sector in 2017, returning 10.12 per cent.

As such, in the 12 months to the end of June, the fund returned 20.18 per cent, slightly ahead of the sector and benchmark, as the below chart shows.

Performance of fund vs sector and benchmark over 1yr to 30 June 2017

 

Source: FE Analytics

Despite this recent outperformance the fund has seen £628m in net outflows over 12 months, though it has actually grown from £6bn to £6.4bn as performance added £1bn.


 

Scottish Widows Multi-Manager UK Equity Income

The fund experiencing the biggest drop in AUM is the three crown-rated Scottish Widows Multi-Manager UK Equity Income.

At the end of June 2016 the fund had £1.3bn in assets under management but has experienced £619m in outflows over one year.

With investment gains of £195m, fund AUM has now shrunk to £885m: a net reduction of £415m over one year. The fund was particularly badly hit during the first half of 2017, with £474m of outflows despite adding £55m from investment performance.

The multi-manager fund was launched in 2004 and has varied its managers over this period, with managers from Neptune, Psigma, Columbia Threadneedle, Jupiter, Henderson, BlackRock and Rensburg all running portions of the fund at various times.

It went through a reshuffle in 2010, moving the management of the multi-manager range in-house. The fund had previously been managed by Russell Investments.

At the end of October – the latest available information on the fund – Neptune, Royal London, Columbia Threadneedle and Liontrust were all responsible for sections of the fund.

Performance of fund vs sector and index in 2016

 

Source: FE Analytics

Since its launch in 2004 the fund has lagged the FTSE All Share and IA UK Equity Income sector, although last year it beat the sector average while underperforming the benchmark, as the above chart shows.

The fund has struggled year-to-date however and is in the bottom quartile of the sector having returned 6.26 per cent.

 

L&G UK Equity Income

The third most sold fund in the IA UK Equity Income sector from 30 June 2016 to 30 June 2017 is L&G UK Equity Income run by Andrew Koch.

The manager took charge in August 2015, replacing Richard Black after the manager left to work overseas.

At the time of Black’s departure, the fund had grown to £590m but it has slipped back significantly since, particularly during the past year.

Over the past three- and five-year periods the fund is a bottom quartile performer, although performance has picked up more recently.

Since Koch took however the fund has become a third quartile performer, although it remains below the sector average and the FTSE All Share benchmark since he has been in charge.

The fund, which had £502m in AUM at the end of June 2016, lost £291m in the year after the Brexit result with £65m in performance offsetting some of the losses.

These outflows have been evenly split over the past year, with the fund losing £153m in the first half of 2017 despite £22m raised though performance. It now has £276m in AUM.


Majedie UK Income

Next up on the list is FE Alpha Manager Chris Reid’s Majedie UK Income, which has experienced £251m in net outflows over one year.

Reid, who has managed the fund since launch in 2011, was joined by co-manager Yuri Khodjamirian in 2013 and has a good longer term track record.

Indeed, it has been a top quartile performer since launch, having returned 128.45 per cent, as the below graph shows. This is 40 percentage points ahead of the sector and 39.92 percentage points ahead of the benchmark.

Performance of fund vs sector and index since launch

 

Source: FE Analytics

The fund was top quartile in the first three consecutive years since inception but has been less impressive more recently since with third quartile returns in 2015 and 2016.

Over one year the fund has experienced £251m in outflows. Positive investment performance of £156m has failed to offset the outflows with fund AUM has falling from £1bn to £905m.

Consistent with all Majedie funds, capacity is limited to ensure that size does not become an impediment to performance.

In March the fund was removed from the FE Approved list. Research manager Charles Younes said at the time: “We have lost our conviction in the fund and there are strong alternatives in the UK Equity Income space.

“Following a difficult period around the Brexit vote, the manager has significantly changed the process of the fund to the extent that we believe our reasons for holding the fund are no longer valid.”

 

Liontrust Macro Equity Income

Another FE Alpha Manager – Stephen Bailey – has also experienced significant net outflows over the period in his Liontrust Macro Equity Income fund.

Bailey, who has run the fund since its launch in 2003 and was later joined by Jamie Clark in 2004, uses a ‘Macro-Thematic’ process, looking at major economic, political and social developments affecting the UK and the rest of the world.

The fund was previously co-managed by Jan Luthman, who oversaw the fund alongside Bailey since launch until his retirement last August.

In the year to 30 June 2017, the fund was hit by £247m in outflows but added £58m through performance gains, as its AUM shrank from £510m to £322m.

Much of this was experienced in the second half of 2016 however, with the fund losing just £49m to outflows over the first half of 2017.

Since its launch the fund has been a top quartile performer, returning 271.59 per cent, however it has struggled more recently, and is bottom quartile over three years and below the sector average over five years.

In fact, the fund has been a third quartile performer in each of the last three calendar years and is on course to do so again this year. It has outperformed the sector average in just one year over this period – back in 2014.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.