Investors pulled more than £100m from the Schroder Income fund in March and April of this year as UK companies began culling their dividends and leaving investors bereft of income amid the coronavirus crisis.
Estimates from Morningstar showed the Schroder Income fund suffered the largest net outflows out of the Morningstar UK Equity Income sector in the two months, with £106m withdrawn from the portfolio.
The Miton UK Multi-Cap Income fund, the Marlborough Multi-Cap Income fund and the Schroder Income Maximiser fund also saw large outflows of around £50m in March and April, while the Majedie UK Income fund saw £46m of net outflows.
|UK equity income funds with the largest outflows in March and April 2020|
|Schroder Income Fund||-£106m|
|Schroder Income Maximiser Fund||-£52m|
|Marlborough Multi-Cap Income Fund||-£51m|
|Miton UK Multi-Cap Income Fund||-£50m|
|Majedie UK Income Fund||-£46m|
UK Equity Income funds have had a tough few months as companies scrapped payouts to shareholders during the crisis.
The first major blow for income came as the UK’s biggest banks scrapped their payments for the rest of the year following pressure from the Bank of England to maintain a cash buffer to help them through the coronavirus crisis.
Further pressure from the central bank encouraged insurers, including Aviva, to suspend their payment until further notice.
Banks and insurers cutting their payments will be particularly painful for UK equity income funds with a value tilt, which are typically more exposed to financials.
For example, Schroder Income — the least popular fund over March and April — holds HSBC, Royal Bank of Scotland and Aviva in its top 10 holdings, accounting for 12 per cent of the fund.
In April, Link Group’s UK Dividend Monitor estimated UK equity income funds were set to suffer a £28bn dividend short-fall this year as almost half of UK companies planned to cull payments.
This estimate was tallied before the government this morning announced any company borrowing more than £50m through its Coronavirus Large Business Loan Scheme was banned from paying out further dividends.
Adrian Lowcock, head of personal investing at Willis Owen, said the equity income had been the main sector “hit hard” by the Covid-19 crisis through a “double whammy” of dividend cuts and share price falls in traditional income sectors such as banks, oil and insurance.
He added: “The Covid-19 crisis highlighted the risks and created an urgent need for investors to diversify their income.
“Those that had too much exposure to the UK market and equities for income have started to shift to other areas either looking to new alternatives for income.”
Darius McDermott, managing director at Chelsea Financial Services, thought the two Schroder funds had suffered given their value style of investing had been particularly badly hit in the sell-off, while Tom Sparke, investment manager at GDIM, said the “real range” of funds affected was a sign the UK was losing its status as a “dividend haven”.
Ben Yearsley, investment consultant at Fairview Investing, agreed, adding some investors could have moved elsewhere to seek income.
Schroders has been approached for comment.
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