Principal recommends investors sell Nutt and Luckraft

Investors should switch out of equity income offerings from Axa’s George Luckraft and Jupiter’s Tony Nutt following underperformance, according to Principal Investment Management.

In the group's latest half-yearly review of the sector, Nutt's fund features on the Grey List, described as "a temporary home for a manager with an out of favour style or an early warning signal for a fund in decline".

Joe Wiggins, an investment manager and the author of the report, says: "Anthony Nutt has struggled to navigate what have undeniably been difficult equity markets in recent years. We hope he can return to form, but feel it is time for investors to consider an alternative to Jupiter Income."

Meanwhile Luckraft's Equity Income and Monthly Income portfolios are on the Black List of consistently underperforming funds.

Principal recommends investors sell out of funds on this list unless the group is already taking remedial action to address performance. The funds' disappointing numbers "continue to weigh", Wiggins says.

Scottish Widows UK Equity Income and the Pru Equity Income Trust are also on the underperformers list, with combined assets of £1bn as investors have yet to switch into stronger offerings.

Principal is confident in the replacements for Nick Purves and Ian Lance, who left Schroders earlier this year. Wiggins says the duo was unique in offering a contrarian, deep value style, but is confident that Nick Kirrage and Kevin Murphy will prove able replacements on the Income fund.

The group's White List includes funds that have delivered strong returns over at least five years without taking excessive risk. New to the list is the Trojan Income fund, managed by Francis Brookes, which Wiggins says is a distinct offering with a keen focus on risk management.

"Though its cautious bias may see it underperform in strong markets, the opportunity for attractive returns with reduced risk make it a compelling long-term opportunity," he adds.

Royal London Equity Income and Halifax UK Equity Income are also among the 14 best performers.

Principal is recommending investors stick with Invesco Perpetual's Neil Woodford on a long-term view, despite a tough 2009 for the manager.

Other strong funds on the winners' list include Artemis Income, run by Adrian Frost and Adrian Gosden; Robin Geffen's Neptune Income; and Threadneedle UK Equity Income and UK Monthly Income.

Geffen has had a "rare challenging spell", Wiggins says, but encourages investors to pay attention instead to Geffen's "outstanding" long-term record.