Citywire Selection: Our top 11 equity income funds
This is our most defensive and steady UK equity income pick. It is able to consistently restrict the volatility of the market and protects investors’ cash better than any other fund in the sector. This means that it will lag in protracted rallies, but the kind of rocky environment we find ourselves in is perfect for it to outperform its peers and give investors peace of mind. It achieves this by having a healthy cash position and large holdings in consumer staples, gold and utilities, while avoiding materials and industrials companies.
Over five years to the end of September the fund has returned 41.7%% compared to the FTSE 350 Higher Yield return of 2%.
This fund is consistently one of the highest dividend payers in the UK market, delivering a yield of 7% or above in every year since launch in 2005. The high yield is generated by using covered call options to enhance income, which may not sit comfortably with some investors. The underlying strategy is very closely linked to the Schroder Income fund which has had a turnaround in fortunes of late. One to pick if you can stomach some short term underperformance for consistently high yield performance.
Over five years to the end of September the fund has returned 22.6% compared to the FTSE 350 Higher Yield return of 2%.
This fund’s contrarian deep value approach leads it to invest in some of the least loved areas of the market. It holds RBS, Barclays and Lloyds but is completely avoiding the materials and tobacco industries. Last year was tough for the fund and we started to look more closely at performance, but in the first nine months of 2012 the performance has been very strong. We will still continue to monitor its progress, but the turnaround is promising.
Over five years to the end of September the fund has returned 24% compared to the FTSE 350 Higher Yield return of 2%.
James Harries is one of the best readers of the macro backdrop and remains in bearish mode. He is particularly wary of the Chinese business cycle and global deleveraging but this has not stopped him delivering strong returns over the last year and over all time periods since the fund was launched. He is heavily backing the US and its currency and those countries with financial clout such as Germany, Switzerland, Norway and Singapore. The fund is overweight high yielding tobacco and pharmaceutical companies while still avoiding financial companies.
Over five years to the end of September the fund has returned 36.5% compared to the FTSE World return of 17.7%.
Robin Geffen has always been a strong proponent of emerging markets, so it is no surprise that his UK equity income fund has a large weighting to companies with a global tilt. This means the performance profile is different to its peers, with a greater degree of volatility. However the yield remains consistently high and long term performance has been hard to question.
Over five years to the end of September the fund has returned 11.4% compared to the FTSE 350 Higher Yield return of 2%.
The ownership of this fund recently changed hands following Liontrust’s acquisition of Walker Crips but the management team have stayed constant. This is a team that until 2011 was one of a select few that had outperformed the FTSE 350 higher yield index for seven consecutive years since launch and recent slight underperformance was not marked enough to cause concern. The managers are bearish on the UK economy and are focusing on companies with an international bias. Tobacco and pharmaceuticals remain key bets.
Over five years to the end of September the fund has returned 20.6% compared to the FTSE 350 Higher Yield Return of 2%.
This fund likes to invest across the market cap spectrum and while its mid-cap allocation may have increased the portfolio’s volatility it has worked to great effect. Always strong in a rally, it has large positions in reinsurance, but is wary of banks, and has maintained a large overweight position in consumer facing stocks. An avoidance of miners and classic defensives has also aided recent performance as has a contrarian stance on some of the UK’s beleaguered defensives. One to pick if you can handle short term volatility for long term outperformance.
Over five years to the end of September the fund has returned 37.1% compared to the FTSE 350 Higher Yield return of of 2%.
Doubt Neil Woodford at your peril. While he is prone to bouts of underperformance he has yet to be proven wrong over the longer term. Recently his trademark defensive stance turned the corner and an excellent 18 months has put him back at the top of the sector. Big stakes in health care and positions in UK and US pharmaceuticals helped him to avoid the worst of the falls in the third quarter of 2011 and provided a strong platform. These allocations coupled with very little in energy and materials are symptomatic of his bearish view on the UK and global economy. One for those prepared to sit it out over the long term.
Over five years to the end of September the fund has returned 21% compared to the FTSE 350 Higher Yield return of of 2%.
At £4 billion this fund has grown due to the consistency of return. While the managers are defensive in nature, they will always enjoy a rally, however short-lived. They have kept faith with a substantial overweight in health care, with UK listed majors GlaxoSmithKline and AstraZeneca joined by US based Abbot Laboratories. At first glance the fund may appear relatively dull, but the managers’ talent for blending in overseas companies and an underweight in industrial names, both help to differentiate it from the crowd.
Over five years to the end of September the fund has returned 18.6% compared to the FTSE 350 Higher Yield Return of 2%.
This fund has done extremely well since launch in 2005, handsomely outperforming global equities and delivering a yield consistently above 4%. The managers don’t give a great deal of credence to where companies are based but instead look for stocks on attractive valuations with strong revenue growth and barriers to entry to ensure dividends are both achievable and sustainable. The fund has maintained a strong bias towards Asia and has a large underweight to North American companies.
Over five years to the end of September the fund has returned 53.5% compared to the FTSE World return of 17.7%.
Leigh Harrison & Richard Colwell have been consistently among the best in their peer group for many years. They are steady out performers who always bear the risks in mind. As a result they have long standing underweights in financials, and currently in the energy and materials sectors too. They are favouring a blend of consumer services, utilities and healthcare companies with selective industrial mid cap names helping to provide the growth opportunities. We back this fund’s steady approach to outperform in almost any climate for equities.
Over five years to the end of September the fund has returned 25.9% compared to the FTSE 350 Higher Yield Return of 2%.
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