Aviva Investors UK Listed Equity Income has emerged as the top-performing UK equity income fund in the latest version of Sanlam UK’s White List, part of its 30 years-long study into the UK equity income sector.
The closely watched study looks at funds in the IA UK Equity Income sector with a market cap of at least £20m and assesses them on seven criteria, including performance, volatility and income, with the most recent period of performance receiving a greater weighting.
Its White List contains a select group of funds that have established their ability to produce superior total returns over five years, while the Grey List can be a temporary home for a manager with an out-of-favour style or an early warning signal for a fund in decline.
Finally, the Black List is for consistent underperformers and may indicate the need for remedial action.
Topping this year’s White List is the £1.1bn Aviva Investors UK Listed Equity Income fund – managed by Chris Murphy and James Balfour – which replaced Robin Geffen’s Liontrust Income fund (formerly known as Neptune Income) at the top after it fell to 19th place and into the Grey List. The study highlighted near-term performance for the decline in Liontrust Income’s fortunes.
While not coming on top for any of the study’s metrics, the Aviva fund continued delivering strong and consistent performance, Sanlam noted, climbing four places to take the top spot.
In second place was Santander Enhanced Income Portfolio, overseen by Graham Ashby and Duncan Green, who “have recently proved their worth again” after a tough 2016.
FE fundinfo Alpha Manager Henry Dixon’s Man GLG UK Income – a favourite with many fund pickers – achieved third place, having dropped one place since the previous study due to lower income than the Santander fund.
Source: Sanlam UK
There were several new funds making it into the latest edition of the White List, including two from Premier Miton Investors’ Chris White: Premier Monthly Income and Premier Income, climbing by 39 and 35 places respectively.
However, sister fund LF Miton UK Multi Cap Income – managed by Gervais Williams and Martin Turner – was not so fortunate and fell from third place to 20th (and onto the Grey List) in the latest study.
Other new inclusions to the White List were Allianz UK Equity Income, Royal London UK Equity Income, Franklin UK Equity Income, MI Chelverton UK Equity Income and Artemis Income.
In addition to LF Miton UK Multi Cap and Liontrust Income, there were a few other funds that fell out of the White List and into the Grey.
These included Rathbone Income, BNY Mellon Equity Income Booster, BMO Responsible UK Income, AXA Framlington Monthly Income and Schroder Income Maximiser.
Source: Sanlam UK
BNY Mellon Equity Income and Rathbone Income fell by 20 and 27 places respectively, noted Sanlam UK, the latter being ranked quite poorly on the amount of income distributed.
There was one “astounding move”: the study’s authors highlighted the Unicorn UK Income fund – managed by Alpha Manager Fraser Mackersie and co-manager Simon Moon – which was deemed to be “languishing” in the Black List and struggling against peers. This time around, however, it has moved up 27 places and into the Grey List.
“While the fund’s volatility is poor, performance has been excellent and it now ranks first, with a return of 31.7 per cent in 2019,” the report noted. “The fund’s small-cap exposure worked exceptionally well in 2019 when its style suited market conditions.”
Moving in the opposite direction, Mark Wharrier and Mike Totton’s £374.5m LF Majedie UK Income fund avoided dropping into the Black List after falling 17 positions.
“Volatility has been particularly high at just over 11 per cent and near-term performance has been disappointing in a market which was exceptionally strong in 2019,” the study’s authors added.
The Black List showed a similar level of activity as the two other lists, albeit largely containing “the usual disappointments”.
Liontrust Macro Equity Income – overseen by Stephen Bailey and Jamie Clark – was a recent addition to the Black List, having hovered around the bottom of the Grey List for some time.
Other additions included the Schroder Income and M&G Dividend.
“Both funds have provided a dearth of distributed income compared with their peers and the inconsistency in long-term performance has had a large impact on their rankings,” said Sanlam UK analysts.
Source: Sanlam UK
Philip Smeaton, chief investment officer at Sanlam Private Wealth, said: “After a year in which the performance of some equity income funds came under intense scrutiny, investors have grown increasingly cautious of unquoted companies that are both illiquid and generally do not have surplus cash to cover dividend payments, marking them out as particularly vulnerable in times of market stress. 
“A further note of caution arises from the concentration of the UK equity market, coupled with the increase in the number companies that are unable to cover the cost of total dividend payments from profits, instead diving into capital reserves.”
Smeaton (pictured) concluded: “We believe that investors in the White List selection of funds who have held their investments over the long term have been well rewarded.
“However, cautious investors should seek to retain some cash deposits, and perhaps fixed income holdings, to reduce the overall risk of their portfolios and to use as a source of funds that may be needed at short notice.”