The UK equity income funds putting the most cash in your pocket

While income hungry investors might be attracted to the bigger names in the IMA UK Equity Income sector, research by Fundweb suggests a number of less obvious funds are better at putting money into their pockets.

FE Analytics shows David Horner and David Taylor’s £209.5m PFS Chelverton UK Equity Income fund has returned £517.75 in income over the past five years for every £1,000 invested, putting it in the top spot.

PFS Chelverton UK Equity Income income earned over five years

The fund is a favourite holding of multi-managers such as F&C’s Gary Potter and Robert Burdett and has achieved a first quartile total return over one, three and five years to 28 January 2014.

Hargreaves Lansdown investment analyst Richard Troue says: “A bias to small and mid caps has helped here and this goes to show you can get both good capital growth and high dividend income from this area of the market.

“Multi-cap income funds should appeal to investors for their potential to grow both capital and income over the long term. Chelverton has done a good job here and our analysis suggests good stock selection has contributed to performance.”

Thomas See’s £1.1bn Schroder Income Maximiser fund is in second place with £501.15 in income over the past five years. The fund aims to deliver a target yield of 7 per cent per year and uses a covered call strategy to achieve enhanced returns.

See says: “We employ an actively managed yield enhancement strategy that is clearly articulated and which investors find attractive. The enhanced yield is produced through the selling of potential upside on a three-monthly rolling basis.

“We run multiple overlapping trades in order to remove some of the unpredictability that volatility can bring to the outcome.”

In third place is John McClure’s £519.2m Unicorn UK Income fund, which was recently ranked as the best performing UK equity income fund in Sanlam Private Investment’s Income Study. The fund’s five-year income on £1,000 is £440.24 and it is also first quartile over one, three and five years.

Top 10 funds for income earned

Rank Fund Income on £1,000 over five years
1 PFS Chelverton UK Equity Income £517.75
2 Schroder Income Maximiser £501.15
3 Unicorn UK Income £441.02
4 Henderson UK Strategic Income £407.24
5 JOHCM UK Equity Income £401.27
6 M&G Charifund £368.13
7 Santander Equity Income £365.24
8 Newton Higher Income £361.39
9 Premier Monthly Income £360.21
10 Premier ConBrio B.E.S.T. Income  £355.59

Source: FE Analytics

Neil Woodford has returned significantly less income than the front runners over the past five years. FE Analytics shows his £13.6bn Invesco Perpetual High Income has put £233.50 into investors’ pockets, while his £9.4bn Invesco Perpetual Income fund has handed them £252.57.

Mark Barnett, who will take over Woodford’s funds in April, has delivered £258.89 in income from his £398m Invesco Perpetual UK Strategic Income fund while other popular offerings such as Adrian Frost and Adrian Gosden’s £6.4bn Artemis Income and Ben Whitmore’s £2bn Jupiter Income do not appear in the top 10.

Troue says: “These managers tend to adopt a longer-term approach. Neil Woodford is a good example of an investor who is aiming to provide a high and rising income over the long term but takes a total return focus and won’t just chase yield.

“What you seen with a few of those bigger funds is they’ve done quite well on the capital side of things over the past few years. So that doesn’t surprise me that they aren’t up there with the highest income payers in the sector.”

Troue adds that these funds may not be as attractive to investors who are keen to receive immediate income, but notes that they could make good components for the portfolios of longer-term investors.