Slater Income has taken the top spot in Sanlam UK’s White List replacing Miton UK Multi Cap Income as the best fund in the IA UK Equity Income sector.
Miton UK Multi Cap Income was at the helm for the past 18 months but is now down to third place, also falling behind AXA Framlington Monthly Income.
The bi-annual study has been running for more than 30 years and reveals the best and worst funds in the IA UK Equity Income sector.
Funds are ranked on seven different criteria including performance, volatility and income generated over a five-year period with emphasis placed on recent performance.
The report is split into three segments: the White List, revealing the best all-round performers; the Grey List, showing the out-of-favour styles or an early warning for funds in decline; and the Black List, the worst performers.
Top performing Slater Income is co-managed by FE Alpha Manager Mark Slater alongside Barrie Newton, Ralph Barber and Nigel Milton.
Sanlam commented that the fund placed first after strong performance since its first appearance in the White List at the beginning of last year which saw it take second place, followed by fifth in the mid-year report.
“Its high-ranking dividend yield, consistent performance and moderate volatility has helped to knock Miton UK Multi Cap Income off the top spot,” the study said.
Source: Sanlam UK
The fund has performed well in the past five years and is up 54.53 per cent compared to its average peer’s 41.77 per cent.
It is worth mentioning that Miton UK Multi Cap Income has performed better than the Slater fund on a five-year basis and is up 76.98 per cent over the period.
Although most of the funds listed in the White List at the beginning of the year have remained, there have been a few new entrants.
The first fund to note is Artemis Income, which has climbed 15 places on the list to fourth after a big fall last year saw the fund drop to 30th place in its sector and lose its spot in the White List.
Schroder had two new entrants into the White List this time with, Schroder Income Maximiser the first. It is up 18 places to seventh while Schroder Income is the bigger jumper and has shot up 38 spots to eighth.
Both funds are co-managed by Nick Kirrage and Kevin Murphy, with Mike Hodgson, Jeegar Jagani and Scott Thompson also listed as co-managers on the Income Maximiser fund.
Sanlam said the Income Maximiser fund’s jump was helped by the fund’s dividend income, which has been stronger than its peers over the period reviewed.
Indeed, its gross yield is 6.9 per cent, the second-highest in the White List, behind only Insight Equity Income Booster (7.7 per cent).
The Black List remained largely unchanged from the beginning of the year with Invesco Perpetual Income & Growth, M&G Dividend, HSBC Income and Aberdeen UK Equity Income still finding themselves at the bottom of the list.
There were, however, three funds that did make a new appearance in the Black List, one of which is Unicorn UK Income.
This time last year, the fund was in the White List before dropping into the Grey List and now the Black List.
Source: Sanlam UK
Sanlam said: “The fund, managed by Fraser Mackersie and Simon Moon, suffered from stock-specific issues which have affected the most recent numbers, leaving the fund at the bottom of the peer group.”
However, to-date, over five years it has returned 45.23 per cent, more than 3 percentage points higher than its average IA UK Equity Income peer.
Also new on the Black List is Schroder UK Alpha Income, whose performance was the key driver for its 12-position fall, according to Sanlam. It said 2016 and 2017 were difficult years for the fund compared to its peers.
Fidelity Enhanced Income is the third fund to appear on the Black List for the first time. Its performance was the determining factor in its fall, according to Sanlam.
Indeed, it has returned 24.23 per cent over the past five years and has underperformed its average peer and the FTSE All Share, which were up 41.77 per cent and 43.38 per cent respectively.
Moving on to the Grey List, there was only one significant upward mover, Ardevora UK Income. The fund climbed 31 places to take the top spot on the Grey List.
Sanlam said: “The fund has tended to deliver consistently on a calendar year versus peers.”
There were, on the other hand, several funds that dropped down from the White List, such as Royal London UK Equity Income, due to poor recent performance.
But it was volatility that was to blame for Standard Life Investments UK Equity Income Unconstrained’s and Premier Monthly Income’s fall from the White List, said Sanlam.
“This pattern of under and outperformance is consistent over previous years too, and has resulted in some of these funds producing a high standard deviation figure versus peers.”
Other big fallers in the Grey List were Franklin UK Equity Income, Premier Income and Trojan Income.
Source: Sanlam UK
The IA UK Equity Income sector has seen some of the biggest outflows recently as there is a lack of dividend cover, a high concentration of dividends coming from a small number of companies and questions over the sustainability of the dividends currently being paid.
However, Sanlam UK chief investment officer Philip Smeaton said the Income Study illustrates that the sector remains attractive.
“Dividend payments from FTSE 100 companies in 2018 are expected to total £87.5bn, which equates to a yield of 4.4 per cent – a far higher return than is available from cash savings and bonds.”
He added: “One thing that is clear is that fund managers who appear in the White List are adept at taking advantage of a volatile corporate and economic climate.
“Looking ahead, markets will accommodate both the Brexit outcome and, in the longer term, the expected interest rate rises in the coming years.
“In the meantime, UK equity income funds are likely to remain a favoured source of income at a level unavailable elsewhere.”