The Unicorn UK Income fund has taken top spot in Sanlam Private Wealth's bi-annual income study, while some of the sector's bigger names struggled in the market volatility.
The study ranks income funds based on the absolute income generated over the last five calendar years, capital growth for each of the past 12 months periods and volatility over the last five years. Funds are then categorised into White, Grey and Black lists.
The Unicorn UK Income fund, co-managed by Citywire AA-rated Simon Moon and A-rated Fraser Mackersie’s, delivered a total income of 26.5% over the five years to December 2015 at a volatility of 2.7%, with a total return of 13.3% in 2015.
This was followed by Citywire AAA-rated David Taylor's PFS Chelverton UK Equity Income, which took second spot on a net income of 31.7% over the last five years and a volatility of 2.9%. The fund returned 16% in 2015.
'Both funds focus on mid-sized and smaller companies, which has helped them outperform their mostly larger company focused peer group. In addition to benefiting from the smaller company tailwind, both funds are in the top quartile of the Study for income generated over the five-year period,' the report's author Charles Brand said.
The highest climber moving into the White List was Michael Clark’s Fidelity Moneybuilder Dividend Fund, which unlike many other top performers is not mid and small cap company biased.
Other notable moves in the White List included Troy's Trojan Income fund, managed by AAA-rated Francis Brooke, which established itself in the top half of the list.
Meanwhile the Miton Income fund, managed by AAA-rated Eric Moore and Gervais Williams, and AA-rated Stephen Payne's Santander Equity Income fund were new entrants in the White List.
White List demotions
Message's fund has registered a net income of 24.8% over the last five years at a volatility of 3.7. In 2015 it returned 3.4%. Meanwhile Beagles' fund is on a net income of 25.8% over the last five years at a volatility of 3.5 and returned 0.5% in 2015.
Both funds fell dramatically to the bottom half of the Grey List after their first poor years since 2011.
However it was not all doom and gloom as they outperformed the FTSE.
'Interestingly, despite the two funds underperforming the UK Equity Income sector over the year, both outperformed the broader UK equity market, demonstrating the resilience that the sector can provide.'
The Black List
'Although it generated the highest yield of any fund in the study, the Schroder Income Maximiser fund sits top of the Black List, having performed amongst the worst in the Income Study in 2015,' Brand said.
Mark Wharrier's BlackRock Income fund also sits in the Black List, although Brand noted an improvement in its performance.
'Despite continued improved performance under Mark Wharrier, the BlackRock UK Income fund has again not quite escaped the Black List, though the manager is now in a good position to take his fund out of the bottom fourteen if he continues to perform,' Brand said.
Overall Brand feels income fund managers have fared well in the tough conditions.
'It is worth noting that, despite the large changes in dividends paid out by companies, the UK Equity Income sector outperformed both the UK equity market and the UK Equity All Companies sector in 2015,' Brand said.
'Investors seeking income from the stock market in 2016 must be sure to consider not only headline yields, but also the sustainability of dividends. The price volatility that we highlighted in our mid-year review has continued, adding to the challenge of finding suitable stocks.'