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Meera Patel, senior fund analyst at Hargreaves Lansdown, said the fund had been removed from its buy list after poor performance in 2007 and 2008.

"After meeting with Carl Stick and discussing the fund in detail, we are now comfortable the changes made to its investment approach have been working in its favour for some months," she said.

"We also continue to believe its bias towards small and medium-sized companies can dovetail well with other equity income funds that invest mostly in larger companies."

Patel said the manager had "fine tuned" the portfolio to place greater emphasis on the quality of balance sheets, debt levels and ability to pay down debt.

She said while his decision to cut the number of holdings from 80 to 50 had increased risk, early results were positive.

The news comes as Stick revealed the dividend on the fund could drop by as much as 10 per cent due to current market conditions.

"If you can close the dividend from where we are now, that provides a very helpful hedge against inflation," he said.

Stick said he looked for companies that could generate cash and invest that back into their own balance sheets, as well as pay out growing income.

"Our process is focusing on value and quality, and our long-term record is testament to this," he said.

But Stick warned investors the yield dividend could yet come down in light of the current market conditions.

"We have maintained interim distribution at 9p, and we're quite happy to do that," he said. "At the start of the year, I was hopeful we would be able to grow the dividend this year.

"We're being a little bit more pragmatic about that now. The market is forecasting between 15-25 per cent market fall-back in dividends this year. We are going to outperform that, but we will see a small cut going into the final distribution."

Stick said although he could not make a prediction for the fund, he said a dividend cut of 10 per cent could be on the cards - below market expectations - positioning the fund for growth next year.

He added: "From that level, if our yield is about 5.5 per cent, it is a substantial increase on cash, and if we can start to grow it next year, I'm confident there will be a very good argument to invest in this fund."