This month, we focus on the ever-popular UK Equity Income space, which houses several of the best-known and best-performing funds and managers available to Britain’s investors.
UK Equity Income has long been a popular sector for local investors, housing many of the industry’s heavyweight managers and often dominating sales.
This has meant several funds becoming huge in the sector – admittedly including one of our picks below – so it is worth perusing lesser-known offerings in the ever-important hunt for income.
Saracen UK Income
Saracen UK Income fund manager Scott McKenzie previously ran income funds at Aviva Investors and Martin Currie. He left Martin Currie in 2009 and seemed to disappear from the industry until April last year, when he was named lead manager on this new launch for Saracen, the Edinburgh-based independent investment boutique.
This is a concentrated portfolio of best ideas, typically 30 to 45 holdings, with a stock picking focus and less regard for the macro environment.
The portfolio is less orientated towards larger stocks, with around 65 per cent in mid and small caps, and stocks are split into two categories – high yield and dividend growers. In performance terms, it is early days for this multi-cap fund and returns since launch are in line with the All-Share.
The fund is a minnow in the sector with around £2m in assets and while the AMC is 0.50 per cent, the current factsheet shows a hefty OCF of 2.29 per cent.
Investec UK Equity Income
There has been criticism that many UK Equity Income funds are similar in terms of stock and sector positions. In a bid to diversify, investors have looked globally for other high-yielding markets as well as into UK mid and small caps.
Looking at Investec UK Equity Income, I struggle to see an immediate USP for a fund seemingly designed to go head-to-head with the heavyweights. It launched in 2015 and is run by Blake Hutchins, who moved from managing similar mandates at Threadneedle to join head Simon Brazier. Investec has established a reputation in UK equities and I would suggest this launch fills a gap in its range. Returns since launch have been well ahead of the All-Share but behind the peer group. Performance against the sector’s heavyweights should not be judged over a year but will be necessary long term to win market share. Fund-raising so far has been slow, with assets just over £16m at the end of May.
CF Woodford Equity Income
Very few funds can whistle straight through the waiting room without even taking a seat but Woodford Equity Income is one such offering.
Manager Neil Woodford has built a broad and deep following over three decades. His departure from Invesco Perpetual allowed him to build a firm aligned to his vision and beliefs. Woodford has launched two funds so far, with the closed-ended Patient Capital Trust focusing on less liquid issues. His open-ended fund is founded on his long-term reputation in the income space and based on a successful formula of active management and engagement with companies.
Woodford looks for companies with sustainable growth prospects and there are no passengers in terms of holdings. A focus on valuation and the long term supports his core belief that investors expect a positive return. Investors buying into the fund from launch have seen a 19.1 per cent rise in the unit price versus 0.6 per cent in the FTSE All-Share.