The relatively strong performance of sterling helped UK Equity Income funds perform strongly in September, according to data from FE Analytics.
The data showed the best performing fund in the Investment Association (IA) universe during September was the £2.7bn JO Hambro UK Equity Income fund, managed by Clive Beagles and James Lovren, which returned 7.7 per cent during the month.
The largest investments in the fund are BP and Shell, but companies that are significantly exposed to the UK economy, such as Lloyds Banking Group and ITV, are also among the top ten investments.
The fund also has significant exposure to UK mid and small cap companies. Those businesses tend to derive the majority of their income from within the UK and so benefit from a better performance for sterling.
Other UK Equity Income funds among the top ten performers were Premier Income and Saracen UK Income.
Top ten funds in September 2019
JOHCM UK Equity Income
Neptune Japan Opportunities
SVM UK Opportunities
VT Cape Wrath
Premier Monthly Income
NFU Mutual UK Property Shares
Saracen UK Income
Artemis UK Select
Premier Optimum Income
Ben Yearsley, a director at Shore Financial Planning, said: “For the first time in a long while, UK equities dominated the performance tables helped by a decent showing from UK equities generally and a good month for sterling.
"Sterling rose against the dollar, yen and euro in September on the back of parliament’s legislation against no deal."
He added: "Equity Income is a stalwart of many investors’ portfolios so it is good to see that sector perform well.
"Many Equity Income managers will be overweight domestically orientated stocks, which will benefit from a Brexit deal and a sterling bounce.”
Despite this, IA data showed that investors continue to flee UK equities, with £700m pulled from UK equity funds in August.
Laura Suter, personal finance analyst at investment platform AJ Bell, said: “The summer months failed to see UK investors heating up their appetite for the UK stock market, with another £700m pulled from the funds in August, wiping almost £4bn out of UK equity funds over the past year alone.
"But the UK isn’t alone, with funds focused on Europe seeing almost £500m of outflows in August. In fact every major equity market saw outflows or at best very modest inflows."
The best performing stock market during September was the Topix, the Japanese Index, which returned 6 per cent, and Japanese Equities was the best performing sector in the Investment Association universe.
Top 5 fund sectors – September 2019
UK Equity Income
UK All Companies
UK Smaller Companies
UK Property Other
The worst performing sector was Flexible Investment, which lost 2.24 per cent in September, while the FTSE 100 gained 3.22 per cent.
Mr Yearsley said: “From a sector perspective the Flexible Investment sector finished last with US Small Cap and Tech having a tough month.
"Surprisingly global bonds didn’t perform well despite the various interest rate cuts; probably down to sterling’s strength.”
Mr Yearsley said the relatively strong performance of the Japanese market may be the result of progress in trade negotiations between Japan and the US, while he said the market was relatively cheap compared with other equity markets at the start of the month.