Enhanced income funds, emerging market debt strategies and several UK equity income portfolios have paid out the Investment Association’s biggest dividends over the past five years, Trustnet research has found. 
In a recent article, we looked at the UK equity funds that paid out the highest income in 2019 with names such as BNY Mellon Equity Income Booster, Liontrust Macro Equity Income and Vanguard FTSE UK Equity Income Index appearing towards the top of the list.
Here, we widen out our research to look for the highest income payers across the whole Investment Association universe and over the past five calendar years.
Sitting at the very top of the list is UBS Global Enhanced Equity Income, as it has paid out total income of £4,758.42 on an initial investment of £10,000 made at the start of 2015.
The £764.8m fund resides in the IA Global Equity Income fund and is managed by Patrick Zimmermann and Urs Räbsamen, with Ian Paczek as deputy.
Performance of fund vs sector over 5yrs to end of 2019
Source: FE Analytics
UBS Global Enhanced Equity Income’s portfolio is built around high dividend and high quality stocks, with top holdings including IBM, Zurich Insurance, Sanofi, GlaxoSmithKline and Ford Motor. The US is the biggest geographic allocation at 48.7 per cent while financials is the largest sector weighting at 18.3 per cent.
It is an ‘enhanced income’ fund, which means it use an option writing strategy to boost its income by essentially selling the potential capital growth of its stocks. This leads to higher income payouts for investors, although the capital growth will tend be lower than that from a ‘conventional’ equity income fund.
This means that while its income payouts have been very high, the fund is lagging both its average peer and its benchmark by a significant margin when it comes to total returns.
Like we saw with the IA UK Equity Income sector in 2019, ‘enhanced income’ funds occur many of the top spots in the rankings of highest dividend payers, as would be expected given their approaches.
Schroder Asian Income Maximiser, BNY Mellon Equity Income Booster, Schroder Income Maximiser, Schroder ISF Global Dividend Maximiser and Premier Optimum Income all fit into this category of fund.
Source: FE Analytics
Global emerging market debt funds have also been some of the strongest income payers of the five years under consideration in this research, as can be seen in the table above.
Templeton Emerging Markets Bond, which is managed by Michael Hasenstab and Calvin Ho, has paid out the most of this after distributing a total of £4,049.69 from an initial £10,000 investment.
It must be noted that while the income payouts of the $9.5bn fund have been strong, it has lagged its IA Global EM Bonds – Blended peers in total return terms. It is the worst performing member of the peer group over one, three and five years, according to FE Analytics.
Other funds focusing on the asset class that have paid some of the Investment Association’s highest incomes include JPM Emerging Markets Debt, Merian Emerging Market Debt, ASI Emerging Markets Bond, Threadneedle Emerging Market Bond and M&G Emerging Markets Bond.
The highest ranked ‘conventional’ UK equity strategy is Man GLG UK Income, which is headed up by FE fundinfo Alpha Manager Henry Dixon. It has paid out £3,265.27 on an investment of £10,000 made five years ago.
Performance of fund vs sector over 5yrs to end of 2019
Source: FE Analytics
Although the value style of investing has struggled for much of the decade since the global financial crisis, this £1.4bn fund has managed to make some very high returns by using this approach. Indeed, its total returns over the past three and five years are the highest of the IA UK Equity Income sector.
Analysts with FE Investments said: “The metrics used to assess the valuation of a company, as well as the fund’s exposure to bonds as a means of generating income, are key differentiating factors for the fund, as they are not widely used by other investors.
“Dixon is committed to the strategy and has always managed money in a similar way. He is very disciplined in his approach, which has meant that despite being often out of favour, he has generated strong relative performance.”
MI Chelverton UK Equity Income is another high income payer that is different to the average IA UK Equity Income strategy. An initial investment of £10,000 has resulted in income of £3,060.57.
The average UK equity income portfolio tends to focus on mega-cap dividend stalwarts (the likes of GlaxoSmithKline, BP and British American Tobacco) but MI Chelverton UK Equity Income invests in smaller companies – and has successfully generally one of the highest payouts in the sector doing so.
In a recent interview with Trustnet, David Taylor – who manages the £714.4m fund alongside David Horner, highlighted the need to avoid the dividend concentration that comes with investing in the same stocks as everyone else.
“Over the years, unfortunately what a lot of income managers have done is started off with an income fund and then kind of morphed into a sort of growth fund because they’ve held all their favourite stocks and never sold them,” he added.
“And then they wake up one day and they don’t actually yield very much because the income’s gone.”