Five new funds join the white list in Sanlam’s latest half-yearly income study, while six of its lowest performers slipped to the grey list.
Sanlam’s study monitors the performance of UK equity income funds with a market cap of more than £20m over a six-month period, comparing metrics including absolute return, capital growth and volatility. The funds are then placed onto a white, grey or black list.
The white list is the group of funds that has produced superior total returns over five years and the grey list is a warning signal for funds in decline or managers with an out-of-favour style. Black list funds are consistent under-performers.
The Slater Income Fund replaces the Miton UK Multi Cap Income Fund as the best performer in the white list thanks to consistent performance and moderate volatility.
The Schroder Income Maximiser Fund jumped 18 places to join the white list, thanks to a dividend income element placing it ahead of its pears.
Schroders continues its success with the Schroder Income Fund which has moved up 38 places in the review to join the white list for the first time. The fund also ranks first in performance versus peers, with a yield of 3.4 per cent.
The Aviva Investors UK Equity Income Fund and the FP Miton Income Fund moved from the top of the grey list to the white list in this reporting period.
Philip says: “The mood of investors is changing and one thing that is clear is that fund managers who appear in the white list are adept at taking advantage of a volatile corporate and economic climate.”
In contrast, the Troy Income Fund dropped significantly since Sanlam’s January 2018 study struggling with issues in its stock selection. Formerly on the white list, the fund is now ranked in 38th position at the bottom of the grey list.
Other funds that slid from white to grey include the Royal London UK Equity Income Fund after a two-year poor two-year period in calendar performance, and the SLI UK Equity Income Unconstrained Fund which was negatively affected in high volatility.
Philip says: “This pattern of under- and out-performance is consistent over previous years too, and has resulted in some of these funds producing a high standard deviation figure versus peers. It is this volatility which is to blame for the Premier Monthly Income Fund and the SLI UK Equity Income Unconstrained Fund falling 18 and 17 places respectively.”
The Threadneedle UK Equity Income Fund’s positioning also worsened over the period under review, dropping eight places into the grey list. The Franklin UK Equity Income Fund fell 20 positions due to poor numbers in the most recent period, while the Premier Income Fund also records poor numbers against higher volatility.
The Schroder UK Alpha Income Fund is one of the new funds to drop to the black list with performance cited was the main driver for the 12-position fall. The Fidelity Enhanced Income Fund also fell into the black list, after disappointing performance numbers versus peers over the period reviewed.
Funds that continue to sit at the bottom of the black list include the Invesco Perpetual Income & Growth Fund, the M&G Dividend Fund, the HSBC Income Fund and the Aberdeen UK Equity Income Fund.
Philip says: “Looking ahead, markets will accommodate both the Brexit outcome and, over the longer term, the expected interest rate rises in the coming years. In the meantime, UK equity income funds are likely to remain a favoured source of income at a level unavailable elsewhere.”