Investments  

Fund Review: UK Equity Income

It is widely expected that some of Mr Woodford’s investors will want to move out of the Income or High Income products he manages at Invesco Perpetual before his departure in April 2014.

Of course, this may happen in dribs and drabs, but it hasn’t stopped other funds in the 99-strong IMA UK Equity Income sector fluffing their feathers in an attempt to attract some investors’ assets.

But which funds, in the long list of contenders, are worthy of that cash?

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Based on a five-year period to November 5, the best performing funds – Mr Woodford aside – are the £351.3m Unicorn UK Income, the £131.7m Chelverton UK Equity Income and the £195.6m Standard Life Investments UK Equity Income Unconstrained funds.

Manager of the latter, Thomas Moore, explains: “We’ve benefited this year from being underweight some of these defensive consumer staples. We’ve not had any pharmaceuticals all year, which have been among the weakest performers recently because the earnings downgrades are particularly savage in that sector.”

Equally, Stephen Bailey and Jan Luthman, managers of the Liontrust Macro Equity Income fund, are well placed to take on extra assets.

“There are a number of funds across the sector that are set to benefit from Neil Woodford’s departure; we are not the only ones,” Mr Bailey says. “We have had very good short-term performance so it is looking good.”

He adds: “Because we concentrate on the large end of the market, the philosophy and process are certainly scalable. We have no capacity constraints whatsoever.”

Surprisingly, Artemis has spoken out about capacity concerns for its Income fund, managed by Adrian Frost and Adrian Gosden.

In the immediate aftermath of Mr Woodford’s resignation announcement, the Artemis Income fund was at the top of shortlists of Woodford replacements for analysts and fund selectors.

But, Artemis hinted that while it was aware of the potential influx into the fund, it was “paying close attention as to how our capacity is utilised”. This year alone (to the end of September), the fund has surged 34.3 per cent from £4.4bn to £5.9bn on the back of positive investment performance and new investor money.

THE PICKS

Unicorn UK Income fund

Managed by John McClure, this fund has produced a top-quartile return across one-, three- and five-year periods – returning 257.28 per cent in the latter to October 29. In comparison, the IMA UK Equity Income sector average return for five years to October 29 was just 111.82 per cent. The primary aim of Mr McClure, who has been at the helm of this fund since it launched in May 2004, is to deliver a gross yield that is at least 10 per cent in excess of that produced by the FTSE All-Share index. According to the latest factsheet, this fund’s largest exposure on a sector basis is to support services at 28.4 per cent, followed by financials at 11.7 per cent.

Chelverton UK Equity Income fund

At £158.2m this fund certainly has the capacity to take on more investor assets and, considering its long-term outperformance, it should be showing up on advisers’ radars when reallocating that Woodford money.