Principal urges investors to ditch Geffen’s £1bn Neptune Income

Principal Investment Management’s latest income study urges investors to switch out of Robin Geffen’s £1bn Neptune Income fund, warning its global growth emphasis is likely to disappoint this year.

The February 2012 Principal White List said funds with more of an income than a growth focus will benefit in the subdued growth environment, with the trend for companies to generate significant dividend flows continuing to play out.

Geffen’s fund has slipped onto the Grey List, defined as a temporary home for a manager with an out-of-favour style or an early warning signal for a fund in decline, Principal said.

The next stage for such a fund is often the Black List, which is home to consistent underperformers. “Neptune Income has been a long-term stalwart of the White List [of winning funds], but Geffen’s focus on global growth is unlikely to be shared by other investors,” said  investment manager and report author Chris Ganney.

“In these austere times, the risk probably lies with a growth disappointment rather than surprise, so with this in mind we feel investors should look elsewhere for the time being.”

The £920m JOHCM UK Equity Income fund has also slipped onto the Grey List, although still labelled a ‘buy’. Ganney said: “The stockpicking skills of Clive Beagles and James Lowen will almost certainly lead to JOHCM UK Equity Income being exposed to areas of the market not usually associated with producing income, so for this reason it has been downgraded to the Grey List.”

Principal has also suggested investors switch out of the Standard Life Investments UK Equity High Income fund, run by Karen Robertson, which has dropped into the Black List.

“It has been a rapid descent for Robertson as the fund only left the White List a year ago, but performance suffered last year as economic sensitivity played a prominent role in the portfolio. There are better options in the sector even if the outlook does turn towards the manager’s positive views on global growth.”

Robertson is joined by J.P. Morgan’s James Illsley, manager of the £280m UK Higher Income fund, which has fallen 5.6% over five years to 6 February, according to Morningstar.

“Meanwhile, the greater flexibility now given to Illsley after J.P. Morgan changed the fund’s investment objective does provide some hope for investors, but his long-term record with the fund suggests otherwise.”

The only new entrant into the White List is Fidelity MoneyBuilder Dividend.

Ganney said: “The fund is managed by Michael Clark, who seeks out well run companies with dependable cashflows that are still able to return money to shareholders in these stringent times.”

The biannual Principal study aims to identify the income funds best placed to deliver an attractive level of income and long-term capital appreciation.