The Merchants Trust, Man GLG UK Income and Rathbone Income are three very different funds that investors could look to add in place of TB Evenlode Income, according to investors. 
On Thursday, FE Alpha Manager Hugh Yarrow (pictured) announced the fund is to soft-close to new investors in May 2018, subject to confirmation from the Financial Conduct Authority (FCA).
After this time there will be an initial charge of 5 per cent levied for new investors, which may prompt some to look elsewhere.
James Calder, research director at City Asset Management, said: “We have met them a few times in the past and like what they do, although there is quite a strong bias in the fund which has been very successful over the last few years hence they are at capacity.
“We think it is fantastic that fund managers put their hands up and say they have enough assets as it is. They are there to protect their unitholders as opposed to just increasing assets under management at any cost.”
The £2bn fund has been one of the best performing equity income vehicles since its launch in 2009, returning 179.65 per cent, ahead of both the IA UK All Companies and IA UK Equity Income sector averages.
Performance of fund vs sectors since launch
Source: FE Analytics
The five FE Crown-rated fund has a quality growth bias, focusing on companies that have high returns on capital and strong free cashflow.
TB Evenlode Income is currently yielding 3.4 per cent and has a clean ongoing charges figure of 0.9 per cent.
Below, FE Trustnet asks fund pickers which funds could take the place of TB Evenlode Income for new investors looking to add equity income exposure.
Man GLG UK Income
First up is FE Alpha Manager Henry Dixon’s five FE Crown-rated Man GLG UK Income, chosen by Shore Capital director Ben Yearsley, although it has a different approach to the growth-orientated TB Evenlode Income fund.
The £407m value-focused strategy has a relatively low correlation to the Evenlode fund, with an r-squared to the fund over the last five years of 0.45. For reference, anything above 0.7 is considered to be highly correlated.
Shore Capital’s Yearsley said investors should not try to find a similar strategy to Evenlode Income but should simply look at the next-best available fund.
“Both funds can broadly be described as multi-cap,” he explained. “Evenlode has more today in mega cap as a difference but that doesn’t mean it will also be the case.
“There is more of a value process with Henry’s fund, so that is a contrast to Evenlode which has more of a quality bias.
“But the key in my view is that both have managers who are expert in their fields and actually I’m more in the value camp at the moment, so I’m relaxed about adding more value to a portfolio.”
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
Despite value remaining out of favour for some time, the fund has been a top quartile performer in the IA UK Equity Income sector over one, three and five years and is second quartile over 10 years. It has also beaten the FTSE All Share in each of these periods.
Man GLG UK Income has a yield of 4.3 per cent and an OCF of 0.9 per cent.
Rathbone Income
Up next, Mark Dampier, head of research at Hargreaves Lansdown, suggested investors take a look at the £1.3bn Rathbone Income, managed by Carl Stick and deputy manager Elizabeth Davis.
The Rathbones fund has been a consistent top performer over the last decade, beating both the FTSE All Share and the IA UK Equity Income sector.
However, in 2017 the fund sat in the bottom quartile of the sector for the first time since the global financial crisis of 2008.
“Equity income funds are all having a bad time at the moment but that’s what happens in momentum-driven markets really,” Dampier said.
Since Stick took charge in 2000 the fund has been the third-best performer in the sector out of 31 qualifying funds, returning 335.39 per cent.
“You have got someone there who has been investing money for about 18 years so has bags of experience and that is the kind of person that you want,” he added.
“I do think that going for a lot experience helps in these markets. I would take experience over anything else at the moment.”
Rathbone Income has a yield of 4.04 per cent and an OCF of 0.79 per cent.
Merchants Trust
Lastly, and the only closed-ended vehicle on the list, is the £516m Merchants Trust run by Simon Gergel.
City Asset Management’s Calder said: “I think it is very difficult to say ‘here is another fund that is exactly the same as that’ because they all have different styles.
“We would go about this slightly differently. The one we like the most is the Merchants Investment Trust but it is a very different way of investing.”
Unlike TB Evenlode Income, which employs a multi-cap approach, Merchants Trust is a more traditional large-cap income trust, although it has recently branched out into the FTSE 250.
“If you are looking for a yield and large-cap exposure you can do much worse than this fund,” he said.
The trust has outperformed the FTSE 100 benchmark and IT UK Equity Income sector over the last decade, retuning 108.12 per cent, though it sits in the third quartile of the sector over this time.
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
One of the main attractions to the investment company is its yield of 5.18 per cent, the fifth-highest in the sector. It would make it the sixth-highest yielder in the IA UK Equity Income sector.
Calder noted: “One thing people look at with the closed-end funds is that in a number of cases and particularly this one they have a revenue reserve – something open-ended funds can’t do.
“Open-ended funds have to distribute all their yield whereas closed-end funds can hold some back for a rainy day which Merchants has done.”
He added: “If you have a difficult environment where companies stop paying dividends for whatever reason this trust could continue to pay out six months to a year’s worth of dividends from its reserves which we find very attractive.”
While it is not a fund that will “excite” many investors with its return profile, those seeking stable income should not be looking for funds to shoot the lights out, said Calder.
Merchants Trust’s shares are trading at a discount to net asset value (NAV) of 3.9 per cent, according to the Association of Investment Companies (AIC). It is 18 per cent geared and has charges of 0.63 per cent.