UK equity income funds with small and mid-cap exposure enjoyed a return to form in the first half of 2017, after stocks hit hard by last year's Brexit vote saw an improvement in performance.
The latest Sanlam Income Study, which focuses on the best and worst 'all-rounders' from the IA UK Equity Income cohort, identified several vehicles that benefited from exposure to companies lower down the market cap spectrum in the first half of 2017.
Smaller companies were the biggest victims in the immediate aftermath of last year's referendum result, but have since recovered in performance terms. Over the last year the FTSE 250 has returned 12.8 per cent versus 9.9 per cent from the large-cap FTSE 100, according to FE Analytics.
The White List of top performers was once again dominated by Miton's UK Multi Cap Income fund, run by Gervais Williams and Martin Turner. Slater Income moved up into second place, while Chelverton UK Equity Income rose to third place.
In the case of the latter, Sanlam said the improved ranking was "due to strong performance over the past year, with a bias toward mid and small-cap companies, along with their continued high income distribution levels". Small cap-focused fund house Marlborough saw its Multi Cap Income fund also move upward, as did the Majedie UK Income strategy.
The small-cap biased Unicorn UK Income fund, run by Fraser Mackersie and Simon Moon, re-entered the White List after falling out of the group in 2016.
The Sanlam study, which focuses on a fund's level of absolute income, capital growth and volatility on a five-year basis, identified a similar theme in its Grey List of funds, considered not good enough for the White List but not performing badly enough to be in the Black List. The study's largest mover, which gained 32 places and left the Black List for the Grey List, was Henry Dixon's Man GLG UK Income portfolio, which also had a bias to small and mid caps.
However, a number of high-profile funds fared less well. Threadneedle UK Equity Alpha Income dropped from the White List into the Grey List, alongside Kevin Murphy and Nick Kirrage's Schroder Income Maximiser product.
"Despite being the highest climber in the January 2017 study, those gains appear to have unwound. Performance has not been as strong. However, the team has maintained the fund’s high yield, which still ranks first for dividend income provided in the past five years," Sanlam said of the latter.
Colin Morton's Franklin UK Equity Income fund fell into the Grey List due to inferior income and growth to that of peers.
While Sanlam's study runs until the end of June, performance for large-cap focused income funds has remained difficult. A number of staple holdings in UK equity income strategies have suffered in recent weeks - including AstraZeneca, British American Tobacco and Imperial Brands - causing a headache for fund buyers.
Aside, Sanlam noted there had been "very little change" at the bottom of the Black List of poor performers. Although Scottish Widows UK Equity Income has ranked last for some time, the HSBC Income fund has now fallen to the bottom.
The fund to drop furthest in the latest study was Newton UK Income which dropped, from the Grey List, 24 places into the Black List. In the previous study it moved out of the White List and had since "struggled in terms of performance and its dividend pay-out level", Sanlam said.
Two funds that returned to the study following a change to the IA UK Equity Income group's yield requirements, Schroder Income and Rathbone Income, are now positioned in the Grey List. The third new entrant, Invesco Perpetual Income & Growth, has gone directly into the Black List.
