Rated Funds update: UK equity income trusts continue to deliver

Money Observer Rated Funds in the open-ended UK equity income sector have largely failed to make headway in 2015; in contrast, many of our investment trusts continue to deliver first-quartile returns.

The top performer of any of our UK equity income picks is the Finsbury Growth and Income trust, which has delivered 10.7% in share price gains in the first four months of 2015 (to 29 April) and 10.4% in net asset value (NAV) growth.

This continues a strong run for Finsbury, which has been managed by star fund manager Nick Train since 2000. Train focuses on strong consumer brands and the trust has recently benefited from strong growth in the shares of food and beverage manufacturers Kraft and Dr Pepper Snapple Group.

The second best-performing investment trust is Henderson's City of London Investment Trust, managed by Job Curtis, which has returned 8.2% in share price terms while growing its NAV 8.4% in the first four months of the year.

Welcome turnaround 

This marks a welcome turnaround for City of London, which has disappointed investors with third-quartile share price returns in each of the past three calendar years (2012, 2013 and 2014).

Since January the trust has benefited from its significant holding in BP, whose shares have risen over 14% year to date on a bounce in the beleaguered oil price, as well as from its stake in top-performing pharmaceutical giant GlaxoSmithKline.

The Troy Income and Growth trust has also fared well, returning 8.1% in share price terms year to date thanks to holdings in most of the companies listed above as well as Imperial Tobacco Group, whose shares have risen 14.2% since 1 January.

Putting in less impressive short-term performances are the Perpetual Income and Growth Trust, managed by Neil Woodford's successor Mark Barnett, and Temple Bar, managed by Investec's head of contrarian investing Alastair Mundy.

Perpetual Income and Growth has delivered 2.4% year to date, while Temple Bar has scraped just 1.8% over the same period.

The former marks a blip for Barnett, who silenced critics last year with consistently strong returns; however, Mundy's performance has been lacklustre for close to 18 months, with shares in Temple Bar shedding 1.4% of their value in 2014 compared to a gain of 3.2% from the UK equity income sector.

Funds lag

Open-ended UK equity income funds have been overshadowed by their overseas counterparts so far this year. The average UK equity income fund has delivered 8.4% since 1 January, placing the sector behind most of the Asian and European sectors including China Greater China, which has returned over 25%.

With the exception of two bright sparks, Money Observer's Rated Funds in the UK equity income category have also largely disappointed since 1 January, with eight out 10 delivering third or fourth-quartile returns over the period.

Schroder Income Maximiser is the worst performer in total return terms, delivering just 5.3% year to date which places it 84th out of 88 funds. Threadneedle UK Equity Income had a similarly poor start to the year, returning 7% since 1 January, followed by Marlborough Multi Cap Income and Artemis Income, which also posted fourth-quartile returns over the period.

In the case of Schroder Income Maximiser, investors are unlikely to be too disturbed by its total return because of its 7% annual yield, which is often paid at the expense of capital growth; however the others may have more to answer for.

The out-performance of the oil and gas sector and the underperformance of UK banks may go some way to explaining the fortunes of some of our Rated Funds, many of which are overweight in the financial sector and underweight energy stocks.

These include Marlborough Multi Cap Income which has close to 30% of its portfolio in financial companies and just 2% in oil and gas, while Artemis Income has a similarly skewed portfolio.

The two stars among our open-ended UK equity income selection are Invesco Perpetual Income and PFS Chelverton UK Equity Income, both of which have delivered second-quartile returns in the year to 29 April.

Another ex-Woodford, current Mark Barnett-managed fund, Invesco Perpetual Income is a consistent top performer that focuses on very large defensive companies (many of which have already been mentioned), which have enjoyed a strong start to the year.

In contrast PFS Chelverton UK Equity Income focuses mainly on undervalued medium-sized companies. Following a disappointing year for small and mid-cap stocks that saw the fund gain just 0.3% in 2014, PFS Chelverton UK Equity Income has returned 8.2% since 1 January which places it mid-table in the sector over the period.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.