Principal Investment Management

• The White List is home to the twelve funds that have proven themselves to be ‘best of breed’ by delivering capital outperformance, well-managed risk and a high level of income over the last five years.
• The Grey List can be an early warning sign of a struggling fund manager, or simply a signal that an investment process is currently out of favour.
• The Black List flags funds that have regularly disappointed and where investors should consider switching to a new fund.

“ Whilst dividends across the market are likely be lower in 2009, the best equity income managers will be focused on selecting companies with resilient earnings, strong balance sheets and robust cash flows. These companies will be well placed to deliver attractive dividend payments in what will be a low-income environment. High quality UK Equity Income funds should find favour”.
Charles Brand, Director, Manager Funds, Principal Investment Management Ltd

Key Points from Study:

2008 was a terrible year for equity investors and the equity income sector was no exception. The financial crisis and subsequent economic slowdown led to sharp falls across all markets. However, despite the pervasive negativity it is crucial to consider the opportunities that are presenting themselves and this is particularly apparent in the UK Equity Income sector.
Drastic action from global central banks has seen interest rates fall dramatically. The UK base rate now stands at 1.5% and may fall further, leading to income becoming a scarce resource. In this environment capital is likely to be driven toward assets classes with a track record of generating an attractive level of income, and the UK Equity Income sector fits the bill. Stable, boring, companies able to maintain their dividends, and much loved by equity income managers, should find support from the market

The White List:

The unwavering outperformance of Neil Woodford cannot fail to impress and Invesco Perpetual Income & High Income remain essential holdings.

Artemis Income is one of the sector’s outstanding funds. Adrian Frost and Adrian Gosden have an investment process focused on company cash flows, which should serve them well in the coming year.

Newton Higher Income makes a return to the White List. Its resolute focus on yield has seen it lag the sector at times, however, its recent avoidance of banks and miners has led to improved performance.

The Grey List:

Whilst established equity income managers Nick Purves (Schroder Income) and Anthony Nutt (Jupiter Income) reside in the Grey List, they have proven track records and deserve the continued faith of their investors.

The Black List:

The resignation of Jeremy Lang was a big shock to the industry and investors in Liontrust First Income. Whilst recent performance had been disappointing, his distinctive investment approach had generated strong absolute returns and a rising level of income since the fund’s launch in 1996. Without Lang there is little reason to own this fund.

Scott McKenzie enjoyed some strong spells of performance whilst heading Norwich UK Equity Income, however, he has so far been unable to turnaround the flagging fortunes of Martin Currie UK Equity Income. In a sector filled with high quality managers, we would invest our money elsewhere.