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 the select group of funds that have established over five years their ability to produce superior total returns, without taking excess risk.
- The Black List is for consistent underperformers and, unless remedial action is being taken, a sign for investors to look elsewhere.
- The Grey List can be a temporary home for a manager with an out of favour style or an early warning signal for a fund in decline.
Sector Comment:
"Inflation continues to run at elevated levels, this may help to erode away the nominal value of our government's debt but it means that the purchasing power of a savers income is decreasing year on year, especially as it is likely interest rates will remain at record low levels for at least another year. However, the main problems lie at the government-level, high-quality companies with resilient business models are prospering, resulting in excess cash accruing on company balance sheets. These companies are now returning larger amounts to investors in the form of dividends; importantly these payments are growing faster than inflation."
Chris Ganney, Investment Manager, Principal Investment Management Ltd:
The White List:
Threadneedle UK Equity Income, UK Monthly Income and UK Equity Alpha Income continue to benefit from the pragmatic approach taken by Leigh Harrison and his team. The early identification of the attractive value in defensive companies in 2011 was another example of this group's ability to enhance investor returns.
Fidelity Moneybuilder Dividend makes a welcome entry into the White List, formerly known as Fidelity Income Plus, this fund is conservatively run by manager Michael Clark. He seeks out well run companies with dependable cashflows that are still able to return money to shareholders in these stringent times and is happy to look overseas if the appropriate opportunities are not available in home waters.
The Grey List:
The stock-picking skills of Clive Beagles and James Lowen will almost certainly lead to J O Hambro UK Equity Income being exposed to areas of the market not usually associated with producing income. But they have been able to increase dividend payments significantly none the less.
Neptune Income, managed by the impressive Robin Geffen has been a long term stalwart of the White List. However, Geffen's focus on global growth is unlikely to be shared by other investors, as in these austere times, the risk probably lies with a growth disappointment rather than surprise so with this in mind we feel investors should look elsewhere for the time being.
The Black List:
It has been a rapid descent for Standard Life UK Equity High Income, only a year ago did the fund leave the White List. Manager Karen Robertson has found conditions tougher than most this year as economic sensitivity played a prominent role in the portfolio. There are better options in the sector even if the outlook does turn towards Robertson's positive views on global growth.
The value of unit trusts/OEICS, and the income from them, can go down as well as up and investors may get back less than originally invested. Past performance is not a reliable indicator of future results.
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