InvestmentsOct 22 2013

Alternatives to Neil Woodford’s income funds

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by

Rival fund groups wasted little time in promoting their equity income funds as alternatives last week, some of them subtly and some less so.

There will undoubtedly be a mad scramble to sweep up the manager’s assets in what is likely to be the biggest ever shake-up of the IMA UK Equity Income sector.

Most of the money that leaves the Invesco funds is likely to flow into large, conservative equity income funds, although in recent years there has been a growth in multi-cap and unconstrained equity income funds that could also benefit from Mr Woodford’s departure.

Selling out of Mr Woodford’s funds may prompt investors to rethink their equity exposure and there could be more interest in global equity income products or even regionally focused funds such as Asian or European equity income funds.

We asked a range of fund buyers, such as multi-managers and discretionary managers, to list their top alternatives.

While many expressed support for Mr Woodford’s successor Mark Barnett, the best alternatives for those looking to relocate are listed here.

Main alternatives

Artemis Income

Managers - Adrian Frost and Adrian Gosden

The £6bn Artemis Income fund was practically a consensus choice among industry experts. The fund is co-managed by Adrian Frost and Adrian Gosden and invests predominantly in UK equities and, like Mr Woodford’s fund, has a bias towards large-caps.

“The fund manager has freedom from formal benchmarks, but the managers pay close attention to risk. This fund has an excellent track record versus the peer group over the short and long term,” said Gavin Haynes, managing director of Whitechurch Securities.

Rob Burdett, co-head of multi-manager at F&C Investments, said the Artemis managers are “very sensible, solid investors,” adding that he had invested with Mr Frost for more than 10 years. He said the two managers were “very much a team”, which had already proven it could cope with a large pool of assets given the size of the fund.

Fidelity MoneyBuilder Dividend

Manager – Michael Clark

Michael Clark may only have taken over this fund little more than five years ago but its risk and return profile has been compared with Neil Woodford’s. Paul Surguy, head of managed funds at Sanlam Private Investments, said the fund was the closest alternative.

He said: “The long-term profile of the fund is similar to Mr Woodford’s funds and it holds similar stocks as well, so it is a decent one if you’re looking for a direct alternative with a sensible, long-term approach and a reasonable income.

“They are both lower risk than the sector with higher returns. If you look at the sector breakdowns they are similar, although Mr Clark does not take the very big positions that Neil Woodford does.”

Royal London UK Equity Income

Manager - Martin Cholwill

Royal London Asset Management’s £517.3m UK Equity Income fund has risen an impressive 140.8 per cent in five years, compared with a rise of 100.6 per cent for the IMA UK Equity Income sector, according to FE Analytics.

UK Equity Income is run by Martin Cholwill, who has been in fund management for 30 years, and invests solely in high-yielding UK stocks, aiming to seek out sustainable dividend payments.

Ian Aylward, head of multi-manager research at Aviva Investors, said Mr Cholwill had perhaps been overlooked by UK Equity Income investors but was a “very credible” manager.

He added that the manager was “less high profile than others but has delivered very pleasing returns out of the UK Equity Income fund for many years”.

Wildcards

Unicorn UK Income

Manager - John McClure

Unicorn’s John McClure has a different investing style to Mr Woodford’s on his £351m Unicorn UK Income fund, but has been successful in the equity income space. Mr McClure tries to find both sustainable dividends and growth, and is geared towards smaller companies.

“If you were looking for something completely different, Unicorn UK Income is small-cap focused and has a great track record,” Paul Surguy, head of managed funds at Sanlam Private Investments UK said.

In five years, the fund has more than doubled the return of the IMA UK Equity Income sector.

M&G Global Dividend

Manager - Stuart Rhodes

Experts have been calling on investors for years to diversify their sources of equity income away from the UK and Mr Woodford’s move could be the spark for that.

Stuart Rhodes’ mammoth £7.4bn fund was picked as the standout choice in the sector, consistently outperforming its peers in all time periods.

Mr Rhodes moved to dismiss any worries about the fund’s size in April, assuring investors that it was a long way from its capacity limit, pointing to his huge universe of potential stocks and lack of significant small-cap exposure.