RWC Partners is to launch a UK equity income fund that will invest via a value and contrarian strategy. The fund will be run by Nick Purves and Ian Lance, who also run RWC Enhanced Income (LU0539372689), which uses derivatives to boost its income, and RWC Income Opportunities (LU0539373141). The new fund will not use derivatives to boost its income, but is rather intended as a plain vanilla core income holding.
The new fund will invest in 25 to 45 stocks, target a yield of 4 per cent and have an annual management charge of 0.65 per cent. RWC expects to launch it in October.
Value investing, which involves buying a company whose share price seems lower than its fundamental value, has been underperforming growth investing – buying companies whose share price grows in tandem with their growth. But many analysts expect a return to form for value investing, particularly in the UK because Brexit uncertainty has forced some share prices down to such low levels that reversion is almost inevitable.
"This is one time where, quite surprisingly, we would actually say a fund launch is sensible and not just following a period when market performance has been good," said Rory Maguire, managing director of rating agency Fundhouse. "This team has very strong UK equity credentials and a long history [of investing] in the income/contrarian value space. Their performance is at such a cyclical low relative to history that this fund looks like a great contrarian option if you want to invest in a strategy with a strong value philosophy that is currently very out of favour."
Ryan Hughes, head of active portfolios at broker AJ Bell, added: "RWC is looking at the value dispersion and has seen how wide the gap is. There's an opportunity to get a fund out there and build a track record for when the value cycle turns, so they could get off to a decent start."
There is a wide choice of UK equity income funds, but not many invest via the type of deep value approach Mr Purves and Mr Lance take. The few that do include the fund that Mr Purves and Mr Lance used to run before they joined RWC in 2010 – Schroder Income (GB00BDD2DX75). Since then this fund has been run by Nick Kirrage and Kevin Murphy who also invest via a value strategy. The fund holds around 50 stocks and yields 3.36 per cent.
Other value income funds include Jupiter Income (GB00BQXWPW10) run by Ben Whitmore, which holds 38 stocks and has a yield of 3.6 per cent, and Man GLG UK Income (GB00B0117D35) run by Henry Dixon, which holds 68 stocks and yields 4.29 per cent.
RWC's new fund is expected to have a similar strategy to SJP Equity Income Fund (GB0008377144), which Mr Purves has run since 2001 and is only available to clients of wealth manager St James's Place. SJP Equity Income normally holds fewer than 40 stocks and has a yield of 3 per cent. Over 80 per cent of its assets are invested in UK stocks.
SJP Equity Income Fund top ten holdings (%)
| Royal Dutch Shell | 6.9 |
| BP | 6.9 |
| Sky | 6.1 |
| GlaxoSmithKline | 5.8 |
| Tesco | 5.5 |
| RSA Insurance | 5 |
| Smiths | 4.6 |
| WM Morrison Supermarkets | 3.5 |
| Marks & Spencers | 3.5 |
| Barclays | 3.4 |
Source: St James' Place as at 30.06.2018
Fund performance
| Fund/benchmark | 1-year total return (%) | 3-year cumulative total return (%) | 5-year cumulative total return (%) | Yield (%)* | Ongoing charge (%)* |
| Schroder Income | 15.3 | 34.05 | 54.96 | 3.36 | 0.83 |
| Man GLG UK Income | 12.19 | 38.13 | 72 | 4.29 | 0.9 |
| Jupiter Income | 8.83 | 34.54 | 54.96 | 3.6 | 0.94 |
| RWC Income Opportunities | 11.13 | 26.89 | 41.41 | 2.9 | 1.06 |
| RWC Enhanced Income | 7.92 | 17.51 | 24.33 | 5.5 | 1.11 |
| SJP Equity Income | 10.8 | 21.13 | 31.14 | 3 | - |
| FTSE All-Share index | 8.79 | 31.67 | 44.39 | 3.64 | - |
| Investment Association UK Equity Income sector average | 5.93 | 22.25 | 43.57 | - | - |
Source: FE Analytics as at 24.07.2018, fund factsheets as at 30.06.2018
