A bullish outlook from the upward direction of indices in 2012 and 2013 has been replaced by a more tentative tone from investors, with capital and downside protection significantly more at the fore of minds than in the past few years.
Having reached a high for the year at the beginning of September, the FTSE All Share as well as the average fund in the UK Equity income sector plummeted almost 10 per cent before bottoming out a few weeks back. The index is now broadly neutral for the year after rising five per cent.
Performance of index and sector in 2014
Source: FE Analytics
IMA UK Equity Income continues to be one of the most popular sectors for UK investors. No funds in the sector have made money since the sell-off began in September but several have done a better job of protecting capital and lost significantly less than the average fund.
As well as losing less during the six weeks of the correction, the below funds bounced back more rapidly than their peers after markets bottomed out on 16 October.
The Henderson UK Strategic Income, Majedie UK Income and MFM Slater Income are the best performers in the sector since 4 September losing 0.65, 0.95 and 1.05 per cent respectively. The sector’s average loss was 3.32 per cent while the FTSE All Share lost 5.03 per cent.
Performance of funds, sector and index since 4 September 2014
Source: FE Analytics
While the tiny £14.9m Henderson UK Strategic Income fund was the best performer it is also one of the most unusual in the sector. Managed by Henderson’s multi-asset team, it is not a straight equity fund, but a fund of trusts.
Its largest holdings include the Investors Capital Trust, Fidelity Special Values, Edinburgh Investment, Polar Capital Income Opportunities and Montanaro Equity Income.
Its performance is not so resilient over the longer and has underperformed the average fund in the sector and the FTSE All Share over one, three, five and 10 years. Over three years it is up 34.96 per cent.
Performance of fund, sector and index over 3yrs
Source: FE Analytics
It the only fund of the four mentioned in this article that failed to beat the sector and index over this period but has one of the best scores in the sector for maximum drawdown over this period.
The fund is currently yielding 3.7 per cent and has an OCF of 1.74 per cent.
The next best performer is the £564m Majedie UK Income fund, co-managed by FE Alpha Manager Chris Reid (pictured) and Yuri Khodjamirian.
Although, the fund is less than three years old and therefore off the radar of many investors and fund buyers, it is gaining some fans amongst multimanagers.
F&C’s Gary Potter recently said the fund is set to be one of the big successes of the sector in coming years.
The fund is a FTSE 350 portfolio with a mixture of mid and large-cap names. This may account for some of the fund’s resilience to the sell-off as large caps were more adversely affected than mid and smaller stocks.
Over the longer term it has done just as well as its performance during the recent correction. It has been a top decile performer in the sector since its launch, returning of 77.07 per cent while the average fund in the sector returned 46.86 and the FTSE All Share was up 39.64.
Performance of fund, sector and index since December 2011
Source: FE Analytics
The fund is currently yielding 3.68 per cent and has an OCF of 0.78 per cent.
The £56m MFM Slater Income fund was the next best performer and, similarly to the Majedie fund, it is also relatively new at just over three years old.
Since it was launched in September 2011 it has returned 66.79 per cent compared to a sector average of 52.67 per cent and a gain in the FTSE All Share of 46.76 per cent.
Performance of fund, sector and index over 3yrs
Source: FE Analytics
FE Alpha Manager Mark Slater, who co-manages the fund alongside Barrie Newton, Bryan Quinton and Ralph Baber, also has a multi-cap approach with a significant exposure to mid-caps.
He recently questioned a widely held belief that mid-caps had been underperforming large caps due a broader rotation.
Slater says what appeared to be a sell-off was just a temporary wobble and expects small and mid-cap stocks to continue to rally for several more years.
The fund is currently yielding 3.9 per cent and has an OCF of 1.08 per cent.