The US Federal Reserve confirmed that its quantitative easing will finally come to an end, but even this failed to cause a significant bump for markets as the move had been well communicated and most experts agree that the first rate rise is still some time away.
Things were busy on the funds’ front too, with one popular sector being hit with record outflows and a star manager returning to the industry after a few weeks away to join a closely watched boutique.
We’ve picked out a few of our best stories from the past few days. All the team at FE Trustnet hopes you have a great weekend.
The data that proves UK Equity Income investors are wrong to obsess over yield
As part of our income campaign, FE Trustnet took a look at the IMA UK Equity Income sector to find out if yield can be a good indicator of future income earned by funds.
Our research suggested that it isn’t at all.
Half of the top 10 highest yielders in January 2007 when on to pay above average income payouts over the next seven years, but the other half didn’t.
What’s more, some of the lowest yielders then paid out some of the highest income payments over the following years.
The £1.1bn Schroder Income Maximiser fund had the highest yield in the sector in January – 7 per cent – and went on to pay the highest amount of income over the period in question – £480.63 per cent on a £1,000 investment.
But Threadneedle UK Equity Alpha Income, JOHCM UK Equity Income, Threadneedle UK Equity Income, Neptune Quarterly Income and Santander Equity Income were all yielding lower than the sector average in January 2007, but were among the top 10 income payers over the following seven years.
Record outflows from UK equity funds: Are investors making a mistake?
Figures published by the Investment Management Association this week showed the IMA UK All Companies sector was hit by net retail redemptions of £852m in September. These are the largest outflows on record of the peer group.
FE Analytics showed that the Schroder UK Opportunities fund, which suffered the departure of its manager Julie Dean at the start of the month, lost the most assets with £523.3m flowing out over the month.
Tom Dobell’s M&G Recovery and Mark Barnett’s Invesco Perpetual Income funds were also high up the redemptions league.
We spoke to fund pickers to see if now is the right time to be selling these well-known funds or if investors should have held on to them for longer.
For example, Ben Williams, investment manager at Saunderson House, said investors who dropped Schroder UK Opportunities last month could have their timing wrong and said he is reconsidering buying it, as it’s now a more nimble fund.
Julie Dean is back in business: Which experts are getting ready to invest?
Dean also jumped back into the headlines last week with the news that she is to join former Cazenove colleagues Tim Russell and Chris Rice at Sanditon Asset Management, the boutique they launched earlier this year.
The firm plans to launch a long/short UK Select fund later this year and a long-only UK fund in 2015, which Dean will be involved with.
Fund analysts say they will watch the launches with interest. Rob Morgan – pensions and investment analyst at Charles Stanley Direct – says he will be looking to invest as Dean’s style is likely to thrive when she is running a smaller pool of assets.
Ben Willis, head of research at Whitechurch, added: “I think it’s evident that she prefers running money at a smaller firm and definitely prefers having control about how large her fund can become.”
Dean developed a strong investor following as manager of the Schroder (formerly Cazenove) UK Opportunities fund, with the below graph showing her impressive track record.
Performance of fund versus sector and index between Dec 2002 and Sep 2014
Source: FE Analytics
One-fifth of UK tracker investors paying 1% for sub-par performance
Research by FE Trustnet also showed that £9.3bn of assets in the IMA UK All Companies sector are in index-tracking funds that have ongoing charges of more than 1 per cent.
The IMA UK All Companies sector has a large number of trackers and about 30 per cent of its total assets are in passives. About 20 per cent of tracking assets are held in expensive passives, which has held back investors’ returns.
The study found that the average investor in an expensive fund is four percentage points worse off than an investor in the cheapest over three years.
It also found the tracker that charges the most is the CIS UK FTSE4Good Tracker, which over the seven years of the past market cycle has given its investors half the return of the index it tracks.
Performance of fund vs index and sector over 7yrs
Source: FE Analytics
The trust that can protect you against both inflation and deflation
Investors are constantly aware of the threat of inflation on their money while events on the eurozone have brought the risk of deflation into their horizons.
Last week, we caught up with the managers of the GCP Infrastructure Investment trust is one of the few portfolios that can shield investors against the threat of both deflation and inflation, as it focuses on investments in infrastructure debt.
Lead partner Stephen Ellis told us: “We anticipate that the portfolio will be protected in an inflationary environment as around 70 per cent of it has linkage to the retail prices index [RPI]. If RPI were to exceed 3 per cent, we would see the cash flow arising from our portfolio to be boosted.”
“This really isn’t that different to other infrastructure and renewables funds, however, because they also have significant inflation linkage.”
“Where we do differ from the other funds, on the flipside, is that we are protected in a deflationary environment. That is because as we are a fixed rate debt provider, our income would not suffer if RPI were to fall or even go negative.”