Three funds have fallen onto Sanlam Private Investments’ Black List of consistent UK equity income underperformers, while two funds have been promoted to the White List.
Graham Ashby’s £94m Ignis UK Equity Income, Phil Doel’s £216.5m F&C UK Equity Income and Adam Avigdori’s £623m BlackRock UK Income funds have been put on the Black List in the latest edition of SPI’s closely watched Income Study.
They replace the Insight Investment Equity High Income, Bill Mott’s £365.5m PSigma Income and Andrew Jones’ £87.5m Henderson Global Care UK Income funds on the list.
However, the £64m Swip UK Income fund remains at bottom of the Black List. The Income Study says: “Swip UK Income fund seems rooted to the bottom of the Black List and we can only reiterate our sell recommendation.”
The White List, which ranks funds that have established over five years the ability to produce superior total returns, has seen the addition of Michael Clark’s £618m Fidelity MoneyBuilder Dividend and Mark Barnett’s £264.7m Invesco Perpetual UK Strategic Income funds.
Meanwhile, Julian Chillingworth and Alan Dobbie’s £49.7m Rathbone Blue Chip Income & Growth and Thomas See’s £920.8m Schroder Income Maximiser funds have been relegated from the White List to the Grey List, which is SPI’s home for a fund with an out-of-favour style or an early warning signal for a fund in decline.
John McClure’s £202.9m Unicorn UK Income fund tops the White List. The fund’s top holdings are markedly different from the typical fund in the peer group, featuring names such as Cineworld Group, Electrocomponents, Interseve, Berendsen and RPC Group.
SPI notes that the Unicorn UK Income, Martin Cholwill’s £463.6m Royal London UK Equity Income and David Horner and David Taylor’s £90.2m PFS Chelverton UK Equity Income fund are members of the White List looking outside the usual dividend stocks owned by most portfolios in the sector.
“Legendary rock band Status Quo are well known for their reliance on three chords. For equity income investors, these three chords are five: Vodafone, Shell, BP, HSBC and GlaxoSmithKline. Together, these stocks made up 37 per cent of dividends paid to investors in 2012,” the Income Study says.
“We neither suggest that Status Quo are a bad band (a matter of taste), nor do we hold individual issues with these stocks, but we point out the dominance they hold over income investors, many of whom will have been impacted when BP suspended its dividend.”
It adds that more nimble funds looking further down the cap spectrum for opportunities have achieved strong returns, citing research by professors Elroy Dimson and Paul Marsh at Numis that shows small-cap value outperformed large-cap value by more than double since 1955 while small-cap higher yielders have compounded at nearly 5 per cent more a year over the past 58 years.
SPI’s Income Study ranks funds in the IMA UK Equity Income sector using seven different criteria based on performance, volatility and the income distributed, with the most recent period of performance receiving a greater weighting.