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Axa Framlington star George Luckraft has admitted he should have taken positions in larger-cap mining stocks at the start of the credit crunch, instead of holding on to financial stakes that took a battering.

Referring specifically to his £506.1m Equity Income and £340.5m Monthly Income funds, Mr Luckraft said he had placed the importance of extracting dividends above generating capital growth, but confessed the decision was "badly timed".

Both funds underperformed the IMA UK Equity Income sector in total return terms in 2007, but paid out more income than ever before, with Equity Income giving investors 27.7p and Monthly Income paying 11p. In 2006 the funds paid out 20.6p and 10.1p respectively.

Mr Luckraft said: "Mining stocks have little or no yield, and they pose a real issue for me as an income fund manager. I haven't had any of the larger mining stocks and obviously I should have done. I was looking to get the dividends up on the funds and that was a badly timed thing."

He added: "I should have put some of the bigger miners on with hindsight, but it's important an income fund does what it says on the tin."

Mr Luckraft emphasised the dilemma between the share price predominance of lower-yielding mining stocks and the turbulence experienced by higher-yielding financials was an issue affecting all equity income managers last year.

Tied to the surges enjoyed by mining stocks was the relative ouperformance of the FTSE100 to the FTSE250 and FTSE350 for the calendar year, which Mr Luckraft said brought his other major problem in that his small and mid-cap holdings were swept along with the trend.

The FTSE100 returned 7.4 per cent for the 12 months, while the FTSE250 lost 2.5 per cent and the FTSE350 gained 5.9 per cent.

"A major area has been the small-cap underperformance," Mr Luckraft said. "This has continued this year so I have that headwind, but there have been some encouraging signs. Asset allocators have taken the view - quite correctly - the UK economy is going to have a tougher time. But with liquidity coming back, some stocks have been rallying by up to 20 per cent."

He said the key to generating good returns from smaller companies in the coming year would be to pick those who had the potential for significant non-UK revenue streams. He tipped aerospace engineering group Hampson as one such stock.

Mr Luckraft's comments followed IFAs' calls for action on his £120.8m Managed Income fund in March, which has suffered consistent underperformance.