Income Study Jan 2011
27/04/11
Principal Investment Management’s Income Study continues in its role as the definitive investor guide to UK equity income funds. In a highly competitive field, the Study seeks to highlight those funds with a proven ability in producing a rising level of income and long-term capital growth, alongside carefully managed risk. It also attempts to warn investors against holding funds that have generated consistently poor returns.
- The White List is formed from the select group of funds that have, over five years, proved their ability to produce superior total returns, without assuming excess risk.
- The Black List is for funds that regularly underperform their peers in producing returns for investors and, unless corrective action is being taken, a sign for investors to look elsewhere.
- The Grey List can be a temporary home for a good manager with an out of favour style or an early warning signal for a fund in decline.
Sector Comment:
“Investing for dividends is a proven long-term strategy for all types of investor but in the current environment of rising inflation and low interest rates, the strategy becomes even more persuasive for those seeking an income.
The best UK equity income managers are finding plenty of opportunities to invest in high-quality, cash-generative companies that are growing dividend payments above the rate of inflation and are therefore confident of increasing the real incomes of their investors.
Whilst the BP disaster led to a fall in the overall market dividend for 2010, the underlying picture is far more promising. Company profits are strong and balance sheets are healthy, barring a severe economic shock, we would expect an increase in the UK market dividend in 2011”
Joe Wiggins, Investment Manager, Principal Investment Management Ltd
The White List:
Since featuring in the White List in July 2008, Threadneedle UK Equity Income and Threadneedle UK Monthly Income have gone from strength to strength. Leigh Harrison and Jonathan Barber produced excellent returns through 2010. The funds are now well established amongst the best of breed. Buy
In 5 years since taking over management of Royal London UK Equity Income, Martin Cholwill has taken this perennial Black List member to the heights of the White List. Buy
Investment focus for CF Walker Crips Equity Income continues to be away from the UK economy. Significant exposure to miners continues to drive performance as the managers look to invest in assets ‘that hurt if you drop them on your foot’. Buy
The Grey List:
A change in manager followed by disappointing returns is usually enough to set the alarm bells ringing. However, Schroder Income is run with a distinct contrarian value style that is necessarily requiring of investor patience. Buy
Given their (correct) optimism on the UK equity market through 2010 the performance of Standard Life UK Equity High Income disappointed particularly given their bias towards economically sensitive areas. As we often stress poor short-term returns are no reason to sell a fund, but the long-term numbers are also under pressure in this highly competitive field. Switch
The Black List:
We were disappointed to issue a switch recommendation on Jupiter Income in our mid-year review as we hold its manager, Anthony Nutt, in high regard. However, the fund has now slipped in to the Black List and continues to struggle against its peers. Switch
COPIES OF THE PRINCIPAL INCOME STUDY ARE AVAILABLE FREE TO INDIVIDUAL INVESTORS WHO CALL OUR BATH OFFICE ON 01225 460010
