Best income-producing equity managers over 10 years revealed

Big UK equity income names such as Neil Woodford and Invesco Perpetual's Mark Barnett rank in the bottom half of the list, which is unsurprisingly topped by funds that write call options to boost the income they produce.

The Hargreaves Lansdown UK Equity Income report, which analysed managers with a track record from the start of 2007 to the end of 2016, found the top managers by income provided were those running the £370m RWC Enhanced Income, £90m Insight Equity Income Booster and £503m Fidelity Enhanced Income products. Enhanced income approaches sacrifice some capital upside by selling call options relating to their holdings.

By contrast, Mr Barnett and Mr Woodford's focus on total return means they struggle against peers on an income-only basis but sit in the top 10 when capital growth is included. Meanwhile, the RWC vehicle made a capital loss of 21.2 per cent, with the Insight and Fidelity products suffering losses of 24.4 per cent and 11.2 per cent respectively. All three produced a positive total return, but sat in the bottom half of the rankings by this measure.

The total return list was headed by Trojan Income manager Francis Brooke, who produced an increase of some 127 per cent. Other strong performers in this category were Thomas Moore, of Standard Life Investments (SLI), Threadneedle UK Equity Alpha Income manager Richard Colwell and Martin Cholwill, of Royal London Asset Management.

Mr Brooke, who takes a conservative approach and favours companies with stable earnings and high barriers to entry, performed well both in terms of capital appreciation and income generated. Previous studies have identified strong performance from the manager over a shorter period.

SLI's Mr Moore was the only manager to rank in the top five for total return, capital growth and income produced.

The report added that the likes of Mr Moore, Mr Cholwill and JOHCM UK Equity Income manager Clive Beagles, who also appeared in the top 10 for total return, had all received "a leg up" from a high exposure to medium-sized companies.

The FTSE 250 returned 113.5 per cent versus just 66.7 per cent from its large-cap counterpart, the FTSE 100, over the period analysed.

"There is a high correlation between having a high fund ranking in terms of capital return, and having a high fund ranking in terms of total return. All of the top 10 funds in terms of total return are also in the top 10 in terms of capital return," said Hargreaves analyst Laith Khalaf.

According to Hargreaves Lansdown, the average fund manager in its sample produced a return "significantly ahead" of the IA UK Equity Income sector average, though a number of elements needed to be factored in.

The sample, for example, includes manager records rather than fund records, only covering those investors with an identifiable 10-year track record and introducing an element of survivorship bias.

"If you are still running an income fund after 10 years of doing so, the chances are you are doing a reasonable job," said the report.

"The IA UK Equity Income sector return by contrast also includes the performance of funds which have been launched, closed or merged over the last 10 years."

However, Mr Khalaf said the Investment Association's (IA) sector was suffering from a "rapidly declining relevance" because of the fact that more than 20 funds had been ejected for failing to meet IA yield requirements. 

"If the Investment Association can find a way to configure its yield requirement to bring some key funds back into the fold, that would significantly and swiftly move the dial for assets under management in the UK Equity Income sector."

Top 10 managers - income returned over a decade

Top 10 managers - total return over a decade

Source: Hargreaves Lansdown