Six of the 10 best-performing funds in the sector are less volatile than their sector average over five years and the same number have a lower FE Risk Score.
Moreover, every fund with the exception of Elite Charteris Premium Income has a lower maximum loss over the period.
Risk/return of top-10 funds vs sector and index over 5-yrs
| Name |
Return (%) |
FE Risk Score | Volatility (%) |
Max loss (%) |
| Trojan Income |
27.1 |
61 |
12.1 |
-10.2 |
| Unicorn UK Income |
26 |
78 |
16 |
-22.2 |
| Elite Charteris Premium Income |
15 |
115 |
20 |
-25.5 |
| Threadneedle UK Equity Alpha Income |
13 |
92 |
19 |
-18.9 |
| Threadneedle UK Equity Income |
11.4 |
89 |
18 |
-19.8 |
| Invesco Perp UK Strategic Income |
11.1 |
71 |
15.9 |
-18.4 |
| Invesco Perp High Income |
11 |
67 |
16.1 |
-14.7 |
| RBS Equity Income |
10.8 |
92 |
18.7 |
-18.4 |
| SJP UK High Income |
10.7 |
70 |
15.8 |
-13 |
| Invesco Perp Income |
10 |
67 |
16 |
-15 |
| IMA UK Equity Income |
-5.5 |
84 |
17.8 |
-23 |
Source: FE Analytics
Only two UK Equity Income funds – Trojan Income and Unicorn UK Income – have managed to beat inflation since November 2006, and both have been significantly less volatile than their sector average and FTSE All Share benchmark.
FE Alpha Manager Francis Brooke’s £382m Trojan Income fund has only recently overtaken its rival in the five-year standings. Brooke has weathered the market volatility in 2011 far better than fellow FE Alpha Manager John McClure, who has paid the price for his mid cap focus.
Indeed, Brooke’s fund tops the sector for both risk and return. As well as being the best-performing UK Equity Income fund over a five-year period, with returns of 27.13 per cent, it has the lowest FE Risk Score [61] in the entire sector.
Performance of fund vs sector and indices over 5-yrs
Source: FE Analytics
Only the CF KB Enterprise Equity Income fund has been less volatile over a five-year period, but the total return of Brooke’s fund is far superior.
Trojan Income is also the best-performing and least volatile fund over a one-year period.
Brooke, who also heads up the Trojan Capital fund, says preserving capital in down markets is more important to him than keeping up with the market in liquidity-fuelled bull runs.
"In such an unstable environment, I’d much rather be on a defensive footing," he said. "At this stage in the cycle, I like companies that can grow their dividend and achieve good capital growth no matter the market condition, rather than cyclicals which are more sensitive to downgrades in GDP forecasts."
"We’ve made it clear to our clients that we’re likely to underperform in market rallies. However, we top the sector over one- and five-year periods, which shows the advantage of investing in quality companies during volatile markets."
In spite of the QE-fuelled bull run in 2009 and 2010, Trojan Income has only marginally underperformed the average fund in its sector over a three-year period.
Performance of fund vs sector and index over 3-yrs
Source: FE Analytics
"Investors need to be more realistic; their expectations for returns are far too high. Growth will be difficult to come by and set-backs are inevitable as long as the financial sector is de-leveraging," Brooke added.
The manager’s view echoes those of Martin Gray, who said in a recent interview with FE Trustnet that he would be more than satisfied with an annual return of 5 to 7 per cent for the next three years.
While Brooke remains defensively minded for now, he believes there will be an opportunity to increase his exposure to risk in the medium- to long-term.
He commented: "I’ve been asked by a number of people how our fund would cope in a more positive market environment. It’s a good question because our fund’s defensive style has suited the markets in the last 10 years or so."
"At the end of the day we’re equity managers; the fund has been defensive because I feel it has been appropriate for the market condition."
"Indeed, I think there will be a time – whether it be in six months, a year or three years – when equities look better value. We are mindful that defensive companies in the tobacco and pharmaceutical sectors are not as cheap as they were, and so small and mid caps could make up a bigger part of the portfolio in the future."
"However, no matter what we are invested in, there will always be an underlying focus on quality," he finished.