The fund was launched one year ago to invest in a volatile domestic market overshadowed by Brexit negotiations.
In that time it has lost 4 per cent. The IA UK Equity Income sector has returned 3 per cent over the past year, meaning the fund has under performed the sector by 7 per cent.
Steve Clayton, joint manager of the fund, admitted "clearly that wasn’t the outcome we hoped for when we launched the fund”.
But he moved to reassure investors, saying he is not concerned about the impact of Brexit on the UK market.
“Mutual interest in trade between the EU and UK should force sanity into the negotiating room, even if it is currently clinging desperately onto the door frame. Brexit aside, domestic politics remains a major unknown," he said.
He said the fund’s investment in doorstep lender Provident Financial was responsible for most of the loss incurred by the fund over the year. The shares of the FTSE 100 lender dropped from £29.50 to the £9.37 over the past twelve months to 13 March.
Mr Clayton has since sold his holding in Provident Financial, along with another stock that has markedly underperformed, advertising business WPP.
Another UK equity income fund manager to have endured a tough year in performance terms partly as a consequence of the investment in Provident Financial in Neil Woodford.
Unlike Mr Clayton, Mr Woodford is sticking with his investment in the consumer lending company, and is placing more capital into the firm.
Mr Clayton said his lack of exposure to the mining sector was another significant drag on performance over the past year.
Job Curtis, who runs the £1.5bn City of London investment trust has been buying mining stocks for the income over the past year. He said the dividend yields remain very attractive at a time when the global economy is growing.
Bill McQuaker, a multi-asset portfolio manager at Fidelity said the global economy remains in a “goldilocks” scenario, where economic growth remains strong but inflation is not rising.
He said this scenario cannot continue, with either the growth or the inflation outlook likely to change.
His response to this is to buy more defensive assets, such as UK government bonds. He feels those assets are better value than US government bonds because the UK budget deficit has been shrinking, which should mean fewer bonds need to be issued.
By comparison in the US, the policies of Donald Trump mean the deficit in that country will grow, and so more bonds will be issued, pushing the price of existing bonds downwards.
Mr Clayton said he expects global interest rates to rise very slowly, as central banks will be wary of damaging economic growth.
That implies central banks will be happier to let inflation rise, which is positive for more cyclical assets, rather than defensive assets such as government bonds.
David.Thorpe@ft.com
