Neptune Income Fund (GB0032325093) has topped a list of the best “all-rounder” UK equity income funds as ranked by performance, volatility and the income they paid over five years to the end of June 2019.
The fund, run by Neptune chief executive Robin Geffen, came first in the latest half-yearly Sanlam Income Study, having risen 25 places since the last edition. The study, which puts particular weight on a fund’s latest 12-month period of performance, noted Neptune Income returned 5.6 per cent in the year to the end of June, when many of its peers lost money.
The fund has a mixture of sector exposures. Its biggest sector allocations were in financials, information technology and materials at the end of July. Microsoft (US:MSFT), which performed well in the past year, is listed among its top 10 holdings.
Some strong performers of recent years have continued to stand out. Man GLG UK Income Fund (GB00B0117B11), run by Henry Dixon, rose from seventh to second place. Sanlam, which assesses funds in the Investment Association’s UK Equity Income sector as part of its study, noted: “While it displays volatile tendencies, its overall performance and income yield have strengthened its position.”
Miton UK Multi Cap Income Fund (GB00B6919195), which has long sat in the top three, came in third place. Sanlam noted the fund had strong long-term performance and “exceptionally low” volatility, despite its exposure to small and mid-cap companies.
The study ranks funds using seven different criteria, focusing on performance, volatility and income paid, with the most recent year of performance carrying particular weight. Sanlam places funds into three groups: its white list contains the best performers. The next category down, the grey list, can be a temporary home for a manager with an out-of-favour style or potentially a fund in decline. The black list houses the worst performers.
Concerns about the US/China trade war and the prospect of rising interest rates triggered significant market volatility in late 2018, with markets then rallying strongly this year. Sanlam said this had a major impact on its rankings, with more changes in the white list than normal. Around half of the funds that sat in the white list six months ago have been replaced.
Some funds have seen notable improvements. Santander Equity Income (GB00B3KMDJ68), which up until January 2017 was in the black list, rose to fourth place. Performance from the fund, which entered the white list in the last study, has continued to improve, while it also has a good historic yield of 4.97 per cent. Sanlam analyst Paris Jordan said: “Fund managers Graham Ashby and Duncan Green seek quality businesses over a high yield. The fund has a nice balance between value and growth so can be used as a core holding. It has a mid-cap bias, which historically over the long term has been good for investors.”
The fund moving furthest was Threadneedle UK Equity Alpha Income (GB00B12WJY78), which has fallen 43 places into the black list. The fund lost 5.7 per cent in the year to the end of June.
Ms Jordan said this was because the fund has “more contrarian ideas where established companies are experiencing short-term difficulties”. She added that supermarket Morrisons (MRW), distributor of industrial and electronics products Electrocomponents (ECM) and general insurance company RSA Insurance (RSA) were included in the fund because “they were deemed to have attractive valuations, not because they saw evidence of improvement”.
Elsewhere, stockbroker Bestinvest’s half-yearly Spot the Dog report focused on poor performers from the UK equity income space. The report, which names and shames funds that have failed to beat their benchmark over three consecutive 12-month periods, listed Woodford Equity Income (GB00BLRZQB71) among its “dog” funds. St James's Place UK High Income (GB0007667776), run by Neil Woodford until June, and Woodford protégé Mark Barnett’s Invesco UK Strategic Income (GB00B1W7J535) also made the list.
