Private wealth manager Sanlam has made multiple changes in the latest rebalancing of its White List of top UK equity income funds. Only six of the funds that were on the list at the time of the last rebalancing in June 2016 remain, with a number of first-time entrants to Sanlam's Income Study making the list. These include MFM Slater Income (GB00B905XJ71) and Majedie UK Income (GB00B7XCNP79).
And another new entrant - CF Miton UK Multi Cap Income (GB00B4M24M14) - tops the White List. This fund is managed by veteran small-cap managers Gervais Williams and Martin Turner, and Sanlam says it has produced solid returns on a consistent basis, despite having a weaker 2016 compared with its own history. CF Miton UK Multi Cap Income also has low volatility of 2.4 compared with its peers - the White List fund average is 2.9 per cent.
This has translated into strong cumulative total returns for the fund, which leads the Investment Association (IA) UK Equity Income sector over five years, and is also in the first quartile over three. However, over one year the fund is at the bottom of its sector, with a total return of 10.8 per cent against its sector average of 23.4 per cent. The fund's managers say that "The weakness in sterling and recovery in commodity prices led to the rise of the FTSE 100 Index in 2016, and the relative performance of income funds with larger exposure to it," but add: "the fund is benefiting now that the market rally is broadening."
During January, the fund was up 0.4 per cent, while the IA UK Equity Income sector average was down 0.1 per cent and the FTSE 100 was down 0.6 per cent. CF Miton Multi Cap Income only has 16 per cent of its assets in the FTSE 100.
It has also provided more income than most other White List funds over the past five years - £33.50 on an investment of £100, the third best after another new entrant, Schroder Income Maximiser (GB00BDD2F083) run by Thomas See, and smaller companies focused MI Chelverton UK Equity Income (GB00B1FD6467).
Sanlam says Schroder Income Maximiser's "Performance has been very strong in 2016, with the fund ranking first out of our universe under this metric, and Mr See has maintained the fund's high yield."
This fund uses derivatives to boost its income payouts, but this technique involves selling away some of its potential future growth. As a result, it typically underperforms a similar portfolio without derivatives in periods when the underlying stock prices are rising, and outperforms when the underlying stock prices are falling.
Sanlam's White list is made up of funds that have established their ability over five years to produce superior total returns. It ranks funds according to seven different criteria including:
• absolute income generated over the past five calendar years;
• capital growth for each of the past five 12-month periods;
• volatility over the past five years.
The most recent period of performance receives a greater weighting, and funds with a value of less than £20m are excluded.
Former top White List constituent Troy Trojan Income (GB00B01BNW49) has fallen into Sanlam's Grey List, which it says "can be a temporary home for a manager with an out-of-favour style or an early warning signal for a fund in decline". Troy Trojan Income, which is run by Francis Brooke, has not performed as strongly as previously.
Sanlam says that this is most likely due to its quality style bias which has started to move out of favour, and because the amount of income the fund has provided over the past five years - £24.20 on an investment of £100 - is much lower than many of its peers.
Sanlam Private Wealth White List
| Fund | Gross dividend yield 31/12/16 (%) | Income over five years to 31/12/16* (£) | Total return 1/01/16 to 31/12/16** (%) | Total return 1/01/15 to 31/12/15** (%) | Total return 1/01/14 to 31/12/14** (%) | Total return 1/01/13 to 31/12/13** (%) | Total return 1/01/12 to 31/12/12** (%) | Volatility 1/01/12 to 31/12/16 |
|---|---|---|---|---|---|---|---|---|
| CF Miton UK Multi Cap Income | 4.5 | 33.5 | 2.4 | 18 | 3.5 | 41.8 | 25.1 | 2.4 |
| Royal London UK Equity Income | 4.1 | 28.2 | 10.3 | 4.8 | 6.3 | 34.1 | 20.8 | 2.8 |
| Threadneedle UK Eq Alpha Income | 4.2 | 29.4 | 13.2 | 2 | 5.6 | 30 | 18.3 | 2.8 |
| AXA Framlington Monthly Income | 4.7 | 27.5 | 9.7 | 4.1 | 6.6 | 30.4 | 10.9 | 2.4 |
| Threadneedle UK Equity Income | 4 | 26.8 | 12.9 | 3.6 | 5.7 | 28.4 | 16 | 2.7 |
| MFM Slater Income | 4.9 | 30.3 | -1.3 | 14 | 6.8 | 35.1 | 15.8 | 2.8 |
| Schroder Income Maximiser | 6.7 | 43.5 | 20 | -6.9 | 2.6 | 24.6 | 25.1 | 2.9 |
| Marlborough Multi Cap Income | 5 | 33.1 | -3.9 | 13.4 | 4.5 | 42.7 | 23.9 | 3 |
| RBS Equity Income | 4.2 | 26.7 | 10.1 | 6.3 | 2 | 25.5 | 16.9 | 2.7 |
| Majedie UK Income | 4.8 | 28.7 | 5.6 | 4.5 | 10.3 | 39 | 18.3 | 3 |
| JOHCM UK Equity Income | 4.6 | 30.2 | 16.2 | 0.5 | 0.7 | 29.7 | 23.6 | 3.2 |
| Franklin UK Equity Income | 4.4 | 25 | 14.3 | 4.7 | 6.1 | 22.5 | 12.2 | 2.8 |
| Standard Life Investments UK Equity Income Unconstrained | 4 | 28.7 | -4.6 | 11.4 | 6.4 | 37.3 | 23.2 | 3.6 |
| MI Chelverton UK Equity Income | 4.9 | 37.6 | 2.2 | 16 | 0.3 | 41.4 | 29.3 | 3.4 |
| White List average | 4.6 | 30.6 | 7.6 | 6.9 | 4.8 | 33 | 20 | 2.9 |
Source: Sanlan Private Wealth
*Based on £100 investment
**Total returns are capital growth and income reinvested
