Rated Funds update: UK equity

UK equity income: Rising dividends

Good yields and rising company dividends over the long term make equity income funds attractive options for income-seekers.

The two star performers among our Rated Funds in this sector over the past six months are Invesco Perpetual Income and Fidelity Moneybuilder Income, each of which returned more than 6%.

Our awards have provided three more names to add to our list. Evenlode Income and Close OLIM UK Equity Income were our best smaller and highly commended smaller funds. Aberforth Geared Income was one of our investment trust winners.

Evenlode Income co-managers Hugh Yarrow and Ben Peters attribute their success to looking for companies that don't have to spend much on capital investment and are therefore able to pay out more to shareholders in dividends.

Aberforth Geared Income was the winner of our best high-income trust award. Its recent success has been partly due to its above-average exposure to very small companies.

However, its ordinary shares are also around 40% geared by its zero dividend shares, so this is not a trust for the fainthearted.

UK growth: Diverse UK core

UK investors are usually advised to keep a significant core of their portfolio in UK funds. In order to provide greater choice and variety in the UK section, we have added some extra choices in addition to the four UK products that featured in the Money Observer awards this year but were not already on our list (see below).

Here we look at the three UK growth funds and one investment trust that featured in our awards this year: Ecclesiastical Amity UK, River & Mercantile UK Equity Unconstrained, Unicorn UK Growth and Schroder UK Mid Cap investment trust.

Ecclesiastical Amity UK won our best ethical or socially responsible investment equity fund award this year.

The fund has consistently outperformed in its sector, IMA UK all companies, for the past 10 years, despite manager Sue Round having to take account of both negative and positive screens when selecting holdings for the fund.

Just as this fund's stock and sector weightings diverge from the FTSE All-Share index, so too do those of R&M UK Equity Unconstrained.

The latter was our highly commended smaller UK Growth fund. It is managed by Dan Hanbury who adopts a contrarian approach, focusing on stocks filtered through his fund's proprietary screening system.

Unicorn UK Growth, previously called the Unicorn Free Spirit fund, was the winner of our best smaller UK growth fund award.

Although one of the fund's managers, John McClure, has since passed away, we are happy that the same strategy is being used by his co-manager, Fraser McKersie, who has taken over at the helm

Although it can invest in any size of company, it focuses principally on smaller companies, including those listed on AIM.

UK small cap: Improvement due

UK smaller companies have had a tremendous run over the past couple of years. Although that trend has now slowed - as investors "rotate" back into larger, more defensive companies - having some small-cap exposure makes sense, as these companies traditionally outperform their larger brethren over the longer term.

Nevertheless, recently most of our Rated Funds and trusts have lost ground, with the investment trusts faring worst. The best gain over six months was achieved by Liontrust UK Smaller Companies, but it has also dropped back over the past three months.

Two new additions to our list were among our fund award winners. R&M UK Equity Smaller Companies and Axa Framlington UK Smaller Companies, were the winners of our best large fund and best small fund awards respectively.

Dan Hanbury, manager of the River & Mercantile fund, selects stocks from those that have passed through the company's in-house screening process. He does not adopt a particular style. Indeed, he likes to blend investments to optimise performance.

Henry Lowson, manager of the Axa Framlington fund, takes a "growth at a reasonable price" approach, which means buying into companies where some good news has not already been priced in. The fund typically invests a third in FTSE Small Cap stocks, the same in AIM stocks and the remaining third in FTSE 250 stocks.

We have put one trust under review in this sector. BlackRock Throgmorton investment trust has suffered one of the heaviest losses over the past six months, even though its ability to invest in contracts for difference means it should still be able to make gains when prices are falling. We hope to see some improvement over the next six months.

Expanding the choices: UK growth

CF Miton UK Value Opportunities

The CF Miton UK Value Opportunities fund was only launched in March 2013, but its managers, George Godber and Georgina Hamilton, have a much longer track record. Godber has worked at Credit Suisse and Matterley.

Hamilton has also worked at Matterley. Their aim with this fund is to find companies whose share prices do not reflect their true value.

The fund has a concentrated "best ideas" portfolio of around 50 stocks. The amount invested in each stock reflects the managers' convictions rather than index weighting.

They pay close attention to companies' financial positions because capital preservation is important to them.

Invesco Perpetual UK Aggressive

Invesco Perpetual UK Aggressive has a concentrated higher-risk portfolio focusing on UK companies that manager Martin Walker believes will provide long-term capital growth.

It does not stick to index weightings and can invest in companies of any size. It recently had just 34 holdings, with its largest exposures to the financial, consumer services, and oil and gas sectors.

Walker, who trained as a fund manager at Invesco Perpetual, has managed the fund since the end of 2012.

Majedie UK Focus

The UK Focus fund is another unconstrained UK fund. It is managed by James de Uphaugh and Chris Field, the two founders of Majedie, plus Matthew Smith and Chris Reid.

Its portfolio comprises each fund manager's best ideas. It can invest in any size of company, but it is currently invested around 60% in FTSE 100 companies. Up to 20% of the fund can be invested in overseas shares.

The managers believe in limiting capacity to maintain performance. The fund is currently valued at £477 million, with total assets managed in the strategy (including those from institutional investors) currently valued at £952 million.

Schroder Recovery

The Schroder Recovery fund is managed by Kevin Murphy and Nick Kirrage, who look for firms that have suffered a profit or share-price setback but appear to have good long-term prospects and potential for decent share-price gains.

These could be companies being unfairly punished by the market because of short-term sentiment or firms that are underperforming in profit terms but have a clear and credible plan to turn this around. It mainly invests in UK companies but can also hold foreign firms.