Are these the best and worst UK equity income funds?

A biannual study, which has been running for 30 years, reveals its latest ranking of the best and worst UK equity income funds.

The latest half-yearly Income Study from Sanlam UK reveals its latest rankings of the best and worst UK equity income funds in the marketplace, including a new leader that has knocked Liontrust Income off the top spot.

Sanlam UK said Graham Ashby and Duncan Green’s Santander Enhanced Income fund moved up from the second place it held in July to topple Robin Geffen’s Liontrust fund after a period of strong performance in 2019 and 2020. However, Liontrust Income remains consistently first and second quartile for volatility, income and performance, the study says.

The White List is the select group of funds that have established their ability to produce superior total returns over five years. 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. The Black List is for consistent underperformers and may indicate the need for remedial action.

The long-running Income Study monitors the performance of 58 funds with a market cap above £20 million in the Investment Association’s UK Equity Income sector over a six-month period, categorising them into the White, Grey or Black List depending on how they have performed for investors.

Continuing its climb up the league table is ASI UK Equity Income, which finishes in third position after jumping 13 places in this study due to top-decile performance and low volatility, even though it paid a low dividend during the period under review.

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Funds which have retained their White List status include the ES R&M UK Equity Income, Artemis Income, Franklin UK Equity Income, NFU Mutual UK Equity Income, Aviva Investors UK Listed Equity Income, BlackRock UK Income, Santander Equity Income and Troy Trojan Income.

Threadneedle UK Equity Income, Lazard Multicap UK Income, and Allianz UK Equity Income have all re-entered the White List after falling into the Grey List in the last study, benefiting from a defensive profile.

Elsewhere, Fidelity Enhanced Income, Fidelity MoneyBuilder Dividend, Man GLG Income and LF Miton UK Multi Cap Income have all fallen from the White List and into the Grey List in this study.

The White List in full 

Source: Sanlam UK

The Black List

While the Black List of laggard funds has remained relatively consistent, two moves stand out. Over the last few studies, Slater Income has slowly dropped from the White List into the Grey and then the Black List. Its investing style and small- to mid-cap bias have seen it struggle, recording poor performance and fourth-quartile volatility against peers, Sanlam UK says.

Meanwhile, Marlborough UK Multi Cap Income has fallen 10 places as poor stock selection in small and mid caps detracted from performance and increased volatility.

Both the Premier Miton Income and Premier Miton Optimum Income remain at the bottom of the list in the most recent study after a “disappointing” two-and-a-half years.

Laggards that remain in the Black List since the previous study include Liontrust Macro Equity Income, Schroder Income, M&G Dividend, UBS UK Equity Income, HSBC Income, ASI UK High Income, L&G UK Equity Income, Janus Henderson UK Equity and Growthand ASI UK Income Unconstrained.

Troubles amplified

The search for yield was already providing tough for investors prior to 2020, but these troubles have been dramatically amplified during the Covid-19 crisis, says Phillip Smeaton, chief investment officer at Sanlam Private Wealth.

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“Reduced revenues and profits as a result of the pandemic led to a significant number of dividend cuts by UK and European companies, while government lockdowns severely impacted businesses in leisure, tourism, air travel, retail and construction. For equity income investors, this has meant some funds have offered substantially reduced yields to investors during 2020 as underlying company holdings focused on rebuilding payments from 2021 onwards.”