Over 10 years, however, the average UK equity trust is up by 34.2 per cent compared with a rise of 52 per cent in the average income unit trust.
Extraordinarily, it has been companies paying a high dividend that have been most severely treated, including companies with healthy balance sheets and good cashflows. The wholesale downgrading of dividend payers has given managers a number of good opportunities. Despite some of the best long-term income fund managers performing worse than the market as a whole, I still think it is right to stick to those who have performed best over the longer term.
I particularly like the Invesco Perpetual funds, as well as Bill Mott’s PSigma income fund, Adrian Frost’s Artemis income fund and Robin Geffen’s Neptune income fund where he has a unique approach to global research and continues to produce impressive results.
George Luckcraft’s Axa Framlington monthly income fund has been a poor performer over the past year, mainly because he invests a bigger proportion of the fund in smaller companies. However, I still believe that he is one of the best income fund managers in the country and should again outperform the majority of his peers.
The best performers over the past year among the bigger funds have been the Threadneedle income funds managed by Leigh Harrison and Jonathan Barber.
Despite the favourable taxation treatment of capital gains compared with income, I still believe that the long-term overall returns of income funds will outperform most growth funds.