The ten UK equity income funds beating FTSE All-Share on all counts
Research using FE fundinfo data
ES R&M UK Equity Income, AXA Framlington UK Equity Income and ASI UK Income Equity are among ten funds in the IA UK Equity Income universe to have beaten the FTSE All-Share on their total returns and risk-adjusted returns, all the while maintaining dividend yields above 4%, according to Investment Week research using FE fundinfo data.
This comes at a particularly torrid time for the sector. According to data from FE fundinfo, the average fund in the IA UK Equity Income sector has lost 23.7% year-to-date, compared to the IA UK All Companies sector average and the FTSE All-Share index's respective losses of 19.8% and 20.7%. Income-focused funds have likely struggled more than their growth-focused counterparts due to a greater dependence on the oil & gas and financial sectors for yield, both of which have been hard-hit this year as high-growth tech stocks have continued to rally.
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In fact, UK equities have struggled across the piste this year due to the index's value-orientated composition; the FTSE All-Share has underperformed the MSCI All-Country World index - more than half of which comprises US equities - by 25.5 percentage points since the start of the year to the time of writing (23 September).
However, there are ten UK equity income funds that have managed to beat the FTSE All-Share's Sharpe ratio, which measures risk-adjusted returns; maximum drawdown, which measures the most money lost if bought and sold at the worst possible times; and total return during 2020, all while maintaining a yield of at least 4%.
Of these, the fund that has achieved the highest Sharpe ratio, the lowest maximum drawdown and the smallest loss so far this year - all while maintaining the highest yield on the list at 4.97% - is ES R&M UK Equity Income.
Manager Daniel Hanbury - who has headed up the £130m fund since 2013 - has a notable bias towards consumer staples, with the likes of Unilever, Tesco, Morrisons and Diageo featuring in the portfolio.
The fund also has a significant underweight to mega caps (£20bn+) and large caps (£4-20bn) at 32.7% and 16.3% respectively, compared to its MSCI United Kingdom IMI benchmark's weightings of 55.4% and 28.8%.
The fund in second place for its total return - and in joint-second place for its Sharpe ratio - is AXA Framlington UK Equity Income. Manager Simon Young has a highly-concentrated portfolio of 37 stocks, with his three largest holdings - AstraZeneca, GlaxoSmithKline and Games Workshop - accounting for a respective 7.7%, 6.7% and 6.5% of the overall fund.
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Young adopts a bottom-up investment approach with a focus on high barriers to entry. The vehicle has a rolling one-year turnover of 7.3%.
The fund scooping the bronze medal for its total return year-to-date is ASI UK Income Equity, which has the joint-second highest Sharpe ratio and second-lowest maximum drawdown on the list.
The £148m fund, which has been managed by Charles Luke since the start of 2016, aims to outperform the FTSE All-Share by 3% over three years before charges but prioritises income over capital gains. The 57-stock fund includes the likes of AstraZeneca, GlaxoSmithKline, Unilever and RELX in its top ten holdings.
The fund on the list that has maintained the second-highest yield at 4.86% is Quilter Investors UK Equity Large-Cap Income, although it has also lost the most money out of the ten funds on the list with a year-to-date fall of 17%.
The 52-stock fund, which has been managed by the Artemis Investment Management team since 2013, adopts a total return approach to income investing. The £270m fund has BP and Shell as some of its largest holdings and an exposure to the oil and gas sector of 9%. Other large holdings, however, include RELX, 3i Group, GlaxoSmithKline and Informa.
One responsible investing-focused mandate also made it onto the list. Janus Henderson UK Responsible Income, which has been headed up by Andrew Jones since 2012, chiefly aims to provide an attractive level of income alongside "potential for capital growth" over five years or more.
The 66-stock fund includes AstraZeneca and GlaxoSmithKline in its list of top ten holdings, but also has significant exposure to medical equipment firm Smith & Nephew, as well as financial services firms Schroders and Standard Life Aberdeen.
Other funds to fare well include BlackRock UK Income, Liontrust Income and both of Columbia Threadneedle's UK equity income mandates.
Methodology
Firstly, only funds in the IA UK Equity Income sector with yields above 4% were taken into consideration, reducing the pool from 87 to 70 funds. Then, we removed all funds with a lower Sharpe ratio than the FTSE All-Share's ratio of 0.09%, which narrowed the list down to 18 funds. From here, we removed funds with a higher maximum drawdown than the index's drawdown of 37.7%. 14 funds made the cut, then the list was reduced to ten vehicles after we ran a total return filter, ensuring all funds on the list outperformed the FTSE All-Share's total loss - including accumulated income and capital appreciation - of 18.1%. All metrics were run year-to-date (to time of data collation - 18 September 2020), and all data was collated from FE fundinfo using the FE Analytics tool.
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