Top Equity Income Funds Revealed

Sanlam's bi-annual study of the UK equity income sector shows which funds have outperformed and paid above-average dividends

James Gard 13 February, 2020 | 9:18AM
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2019 may have been a terrible year for the UK equity income sector, but Sanlam’s latest survey shows that the best funds have managed to beat the benchmark as well as paid out a decent income.

Sanlam’s income study puts Aviva Investors UK Listed Equity Income Fund at the top of the 62-strong list of best performing funds, with a return of 23.5% for 2019 and yield of 4.3%.

The wealth manager’s report looks at performance using seven criteria including performance, volatility, and income. It considers fund's total return over the full five year period, as well as its performance in each individual calendar year, but the most recent period of has a greater weighting in how the funds are scored.

The top performers make it on to the White List; the study's 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”, while those on the Black List are seen as consistent underperformers.

The Aviva fund has a 3-star rating from Morningstar, meaning it has performed in line with its peers. In 2019 it beat both its benchmark, the FTSE All-Share, and the Morningstar UK Equity Income category average.

Santander Enhanced Income Fund and the Bronze-rated Man GLG UK Income Fund make up numbers two and three on the list.

The Sanlam study reinforces the message of that high yields can often be a warning sign to income investors to steer clear of “dividend traps”. Philip Smeaton, chief investment officer at Sanlam Private Wealth, says “opting for more modest payments can result in better overall value over time”. Indeed, companies on Evenlode’s list of top 10 sustainable dividends have yields of around 2-3% but focus on those which can grow their payout over the long-term. The yields on funds on Sanlam’s White List are a touch higher, with an average yield of 4.6%.

 

White List Funds

% Dividend Yield

2019 Total Return %

     

Aviva Investors UK Listed Equity Income

4.3

23.5

Santander Enhanced Income

5

26

Man GLG UK Income

5.3

20.9

NFU Mutual UK Equity Income

4.6

19.3

Allianz UK Equity Income

4.6

28.3

Royal London UK Equity Income

4.4

31.1

Premier Monthly Income

4.9

27.2

Franklin UK Equity Income

4.5

22.4

Santander Equity Income

5.1

25.9

Lazard Multicap UK Income

4.6

19.3

Premier Income

4.9

27.4

Trojan Income

3.7

20.5

MI Chelverton UK Equity Income

4.7

24.6

Artemis Income

4.4

22.1

     

White List Average

4.6

23.6

     

Source: Sanlam/Dividend yield at 31.12.2019

   

 

White, Grey and Black Lists

The top 14 funds on the White List have paid out an average of £22 for every £100 invested over a five-year period and the average 2019 total return – including capital growth and income reinvested – for these funds was 22.7%.

Funds on the Grey List have paid a similar amount of income to those on the White List around £22 but produced a lower return in 2019 at 19.8% - still an impressive performance given the FTSE 100’s gain of 12% in the year, but in line with the FTSE All-Share’s 19.2% return.

On the Grey List, Sanlam notes the steep drop in the position of the Liontrust Income fund (formerly Neptune Income) from first place in the last study to nineteenth place in this latest report, which it puts down to volatility last year and average performance.

There are three new entrants to the Black List: Liontrust Macro Equity Income fund, Schroder Income and M&G Dividend fund. Sanlam also highlights three “laggards” that consistently appear in the Black List: HSBC Income, UBS UK Equity Income and Janus Henderson UK Equity Income and Growth.

Smeaton says investors in the UK equity income sector are understandably wary after Woodford and suggests a way of managing their liquidity fears: “Cautious investors should seek to retain some cash deposits, and perhaps fixed income holdings, to reduce the overall risk of their portfolios and to use as a source of funds that may be needed at short notice.”

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

James Gard  is content editor for Morningstar.co.uk