Investors backing the £1.8bn Evenlode Income fund can feel pretty pleased with themselves as it is the only fund in the IA UK All Companies sector to outperform the FTSE All Share in every calendar year since 2010.
However, for those worried that its unique run can’t last forever, Jupiter Special Situations, Standard Life Investments UK Equity Income Unconstrained and Chelverton UK Equity Income are funds that investors may wish to pair it with, according to fund pickers asked by FE Trustnet.
The five FE Crown-rated Evenlode Income fund has been a top quartile performer since its launch in 2009 and since 2010 has beaten the FTSE All Share in every calendar year, as the below chart shows.
Performance of fund vs FTSE All Share per year since 2010
Source: FE Analytics
“Evenlode Income has been a really strong performer and I have been impressed by the way it has, so far at least, consistently added value,” Charles Stanley Direct pension and investment analyst Rob Morgan said.
Run by FE Alpha Manager Hugh Yarrow (pictured) and Ben Peters, the fund has a bias to quality growth stocks, using an investment process that screens stocks on dividend yield, dividend growth and free cash flow generation metrics. 
The fund has a yield of 3.3 per cent and a clean ongoing charges figure (OCF) of 0.9 per cent.
However, Chelsea Financial managing director Darius McDermott noted “it is difficult to say that the style of stocks that the managers buy haven’t been in favour, because they have”.
Charles Stanley Direct’s Morgan added that the fund could struggle if key areas such as consumer staples experience a wobble.
“I therefore think it unlikely that the fund’s style will be in vogue forever and I would not expect first quartile calendar years to continue indefinitely – even if the managers’ strong stock picking continues,” the analyst said.
“As with any actively-managed fund investors must expect some periods of underperformance even if in the long term it outperforms.”
As such, below FE Trustnet looks at some of the funds asset allocators are pairing with Evenlode Income in case the fund does have a disappointing year.
Standard Life UK Equity Income Unconstrained
Morgan said he uses the £1.2bn Standard Life Investments UK Equity Income Unconstrained fund alongside Evenlode Income as a good diversifier.
Run by Thomas Moore, the five crown-rated fund has been a top performer in the IA UK Equity Income sector, sitting in the top quartile over one, five and 10 years, though it had a particularly poor 2016, finishing last in the sector as the value trade came back into favour.
“Thomas Moore adopts an open-minded, stock picking approach with significant exposure to small-and mid-cap stocks,” Morgan said.
“Plus it’s more domestically orientated to the UK economy whereas Evenlode contains mostly large international business.”
Performance of fund vs sector and FTSE All Share per year since 2010
Source: FE Analytics
He added that while the fund struggled in 2016 following the Brexit vote, which caused sterling to fall and domestic earners to be hit particularly hard, it has since recovered well, returning 17.96 per cent last year – a top quartile performance.
“The funds would complement each other to form a well-rounded equity income portfolio. Both have outperformed over the long term but with very different approaches,” Morgan concluded.
Standard Life Investments UK Equity Income Unconstrained has a yield of 3.85 per cent and an OCF of 1.15 per cent.
Jupiter UK Special Situations
Chelsea Financials’ McDermott said he would look to pair the growth-orientated Evenlode Income fund with a value focused offering such as the five crown-rated Jupiter UK Special Situations fund, run by Ben Whitmore.
“If their style of investment is supported, then Evenlode will definitely continue to outperform and I would be very comfortable holding them as my quality fund but would put it alongside a value fund,” he said.
Whitmore’s £1.7bn fund has been a top quartile long-term performer, up 144.25 per cent despite the growth style outperforming for much of the last decade.
It had a particularly good year in 2016 as the value trade came roaring back and out-of-favour sectors including miners and oil stocks shot the lights out.
Last year, with the return to the low-growth rhetoric that has dominated markets since the financial crisis of 2008 the fund underperformed.
“Jupiter Special Situations is a value fund and there aren’t that many obvious out-and-out value funds out there anymore,” McDermott said.
“Ben Whitmore is a contrarian value manager. He buys things that are out of favour and that everybody else hates and is patient. He had a good 2016 when value returned and I went to see him last year and he was slightly perplexed that the value rally hadn’t continued.
“We are very comfortable holding those two funds as they are complementary to one another.”
Jupiter UK Special Situations has a yield of 2.1 per cent and an OCF of 0.76 per cent.
MI Chelverton UK Equity Income
The third fund investors could look to pair with Evenlode Income is the £600m MI Chelverton UK Equity Income fund, managed by David Horner and David Taylor.
Andy O’Shea, head of investment research at Pharon Independent Financial Advisers, said “Even the greats of this industry have periods where they experience below par performance and to this end it is prudent to diversify.
“A good starting point would be an all-encompassing FTSE All Share tracker fund, though given how far we are into the bull market my focus is drawn towards actively managed funds that have delivered good performance in their own right, whilst over the last five years consistently exhibited a low level of correlation to the Evenlode Income fund.”
He said a number of funds appeared as having an acceptable level of diversification on his screening process, including LF Miton UK Multi Cap Income, Marlborough Multi Cap Income, Slater Income and MI Chelverton UK Equity Income.
“My preference at the moment is for MI Chelverton UK Equity Income – given the increase in opportunities afforded by an experienced small-cap team – as a result of the expected reduction in research undertaken in this area by analysts brought on by MiFID II,” O’Shea said.
While Evenlode is a multi-cap fund, Chelverton specialises in a low turnover portfolio of predominantly small-cap stocks that have an average market cap of £700m and an absolute minimum cap size of £50m.
The investment process looks at a company’s historic yield and its ability to grow the dividends going forward, determined by conventional cash flow and balance sheet analysis.
“The Chelverton team also expect a company to offer dividend cover of 2x, as this provides potential for a dividend increase and or the ability to maintain the dividend should it experience a difficult trading period,” O’Shea noted.
The fund has been the one of the top two best performing funds in the IA UK Equity Income sector over one, three, five and 10 years, returning 195.58 per cent over the last decade.
Performance of fund vs sector and FTSE All Share per year since 2010
Source: FE Analytics
“Both funds have very impressive performance, but it is the low correlation between Evenlode and Chelverton over the last five years that makes them such a complementary pairing,” O’Shea said.
MI Chelverton UK Equity Income has a yield of 4.64 per cent and an OCF of 0.88 per cent.