Artemis Income and Royal London UK Equity Income are among the IA UK Equity Income funds that have made some of the sector’s best total returns over the long run but are still generating a higher yield than the FTSE All Share. 
UK equity income funds have been shunned by investors over recent years, with more than £14bn being pulled out the sector since the country voted in 2016 to leave the EU.
The high-profile problems at Woodford Investment Management – the suspension of its flagship LF Woodford Equity Income fund and Neil Woodford’s decision to close his boutique – will have done little in recent days to boost these strategies in the eyes of investors.
That said, the IA UK Equity Income sector is the 10th largest in the Investment Association universe (admittedly down on its position before the Brexit referendum) with total assets under management of £49.8bn, meaning it remains a relatively important one.
In this article, we have looked across the sector for funds that are in the top quartile over one, three, five and 10 years and are currently yielding more than the FTSE All Share (4.21 per cent, as at the end of September 2019).
Source: FE Analytics
After running these filters, just four funds were left behind – shown in the table above and ranked by their yield at the end of the last month.
At the top of the table is the £769.8m Franklin UK Equity Income fund, with a yield of 4.63 per cent. The fund has been managed by Colin Morton since January 1995, making him the longest serving manager in the sector; he was joined on the portfolio by Ben Russon and Mark Hall in September 2013.
An investment of £10,000 into the fund made 10 years ago would have since paid out £6,473 in income alone. It has the aim of generating an income higher than the FTSE 100, doing so through a portfolio that has at least 70 per cent in FTSE 100 names.
The FE Invest team said: “Similar to a lot of income funds, the Franklin UK Equity Income fund does provide the necessary income as it says on the tin. However, this fund’s managers differ in that their discipline across the team to dividend yield and bottom-up fundamentals leads them to appear as contrarian in comparison to peers.”
Franklin UK Equity Income has an ongoing charges figure (OCF) of 0.52 per cent.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
Next up is Martin Cholwill’s £2bn Royal London UK Equity Income fund, which is yielding 4.41 per cent and has paid out £6,231 over the past decade on an initial investment of £10,000.
Cholwill’s approach looks companies with robust balance sheets that are currently out of favour with the rest of the market, meaning he can buy them on a dividend yield premium. His process focuses on free cash flow as the manager believes this is the best indicator of how sustainable dividends are.
Analysts at Square Mile Investment Consulting & Research, which gives the fund an ‘A’ rating, said: “We hold this fund’s longstanding manager in high regard. He is a highly experienced investor who, over the course of his extensive career, has honed his investment process across a number of market cycles.
“We believe the approach employed, which centres around cashflow and the sustainability of dividends, is wholly pragmatic given the fund's remit of seeking to grow its distributions over time.”
Royal London UK Equity Income has a 0.72 per cent OCF.
The £343.9m BMO Responsible UK Income fund, which is managed by Catherine Stanley, appears in third place with a 4.30 per cent yield. An initial investment of £10,000 made 10 years ago has led to income payouts of £5,579.
Stanley seeks UK businesses whose products and operations are considered “to be of long-term benefit to the community both at home and abroad”, while avoiding those that are involved with “harmful” products or trade with extensively with oppressive regimes.
Its top holdings at the moment include HSBC, GlaxoSmithKline, AstraZeneca, Intermediate Capital Group and Vodafone, with the largest sector allocations being to financials (34.3 per cent), industrials (13.2 per cent) and healthcare (11.6 per cent).
BMO Responsible UK Income has an OCF of 0.81 per cent.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
The final fund on the list is the largest in the IA UK Equity Income sector: the £5bn Artemis Income fund. Managed by Adrian Frost, Nick Shenton and Andy Marsh, it has paid £5,598 on an investment of £10,000 made a decade before.
This is another fund that concentrates on free cash flow, which the managers believe steers them towards more robust companies and helps to generate a yield that is higher than the market average.
Square Mile rates the fund ‘AA’ and said: “The calibre of the managers, particularly Frost, and the fund’s successful longer-term track record is undoubtedly a contributory factor to the sizeable level of assets which now follow this strategy.
“Although we do view the fund's size with some caution, we acknowledge that the managers tend to focus on stocks with larger capitalisations. However, we also note that the opportunity to consider companies with smaller market capitalisations is somewhat reduced.”
Artemis Income has an OCF of 0.80 per cent.