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:
"In an environment where economic growth will be unpredictable and restricted by high levels of government debt and spending cuts, equity markets are likely to remain volatile. It is under these conditions that investing in companies with certainty in their cash flows and strong balance sheets should prove compelling. With many companies having cut costs through the recession and restructured their debt at attractive levels, cash is building up and they are now in a position to significantly increase their dividends and as a result investors in UK equity income funds are finally seeing their fortunes reverse following three years of reducing dividend payments."
Chris Ganney, Investment Manager, Principal Investment Management Ltd.
The White List:
The Adrians, Frost and Gosden, have long bemoaned that 'markets have been ignoring companies outside of the cyclical recovery story'. This has affected Artemis Income over the last two years but the duo are now more confident that companies will be rewarded by the market for cash generation and increasing shareholder returns in an uncertain economic environment. Buy
An investment process that adapts to the changing economic conditions has allowed Cazenove UK Equity Income to outperform the peer group consistently since launch. Matt Hudson has shown himself to be a nimble manager by successfully navigating this fund through many different market conditions and has very much earned its position in the White List. Buy
The Grey List:
As the market looks to reward certainty over potential the Schroder Income style of focusing on deeply out of favour companies may not be rewarded in the near term. Nick Kirrage and Kevin Murphy have found the first year of their tenure difficult following the departure of their predecessors, Nick Purves and Ian Lance, to pastures new. They should be rewarded for their patience over time but at the moment there are better opportunities out there for investors. Switch
CF Walker Cripps Equity Income, has a focus on the global economy and provides exposure to many of the themes driving growth around the world, differentiating itself from many of its peers. This fund provides diversification of style for investors in the sector, while not sacrificing yield. Buy
The Black List:
Gerorge Luckraft has a strong history of investing in smaller companies so it is disappointing that when this area of the market has performed strongly neither Axa Framlington Equity Income nor Monthly Income have kept up with their immediate peers and we feel we must re-iterate our previous recommendation. Switch
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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.
