Equity Income funds: don’t throw the baby out with the bath water
- Top Ten Equity Income funds for income
- Top Ten equity income funds for total return (growth & Income)
- Five key characteristics of equity income funds
Investors who ditch equity income funds following a recent spate of bad press risk missing out on returns far in excess of the market, according to Adrian Lowcock of Willis Owen.
The equity income sector has come under intense scrutiny in recent weeks, which may cause investors to flock to other investment types for decent returns.
But new figures from Willis Owen reveal the best equity income funds have produced returns far in excess of the market over the past decade.
On average, equity income investors have achieved returns of more than 145% in the past 10 years, compared with the 136% return achieved by the FTSE 100.
But investors who backed the best-performing equity income fund of the past decade, Unicorn UK Income, have achieved a return of 338% – nearly 2.5 times that of the FTSE 100.
Top ten equity Income funds for income:
| Fund | Income Return |
| Unicorn UK Income in GB | 146 |
| Premier Optimum Income in GB | 122 |
| Royal London UK Equity Income in GB | 114 |
| M&G Charifund in GB | 107 |
| Fidelity Enhanced Income in GB | 100 |
| Janus Henderson UK Equity Income & Growth in GB | 100 |
| Premier Monthly Income in GB | 100 |
| Schroder UK Alpha Income in GB | 99 |
| AXA Framlington Monthly Income in GB | 99 |
| Janus Henderson UK Responsible Income in GB | 98 |
Source: FE Analytics from 31st May 2009 to 31st May 2019. Income Return (Total Return – Price Return) in Pounds Sterling
Top Ten equity income funds for total return (growth & Income)
| Fund |
Total Return |
| Unicorn UK Income TR in GB | 338 |
| MI Chelverton UK Equity Income TR in GB** | 326 |
| Royal London UK Equity Income TR in GB | 233 |
| Janus Henderson UK Equity Income & Growth TR in GB | 213 |
| Janus Henderson UK Responsible Income TR in GB | 204 |
| JOHCM UK Equity Income in GB | 200 |
| Standard Life Investments UK Equity Income Unconstrained in GB | 194 |
| Man GLG UK Income in GB | 190 |
| Schroder Income in GB | 183 |
| Rathbone Income TR in GB | 181 |
Source: FE Analytics from 31st May 2009 to 31st May 2019. Total Return in Pounds Sterling
Below Adrian Lowcock, head of personal investing, Willis Owen, sets out five tips for picking the best equity income funds:
- Decent yield – Equity funds should have a yield at least the same as the index or more likely slightly higher. If an equity income fund has a low yield then it might have more of a growth focus to it and be riskier. Likewise a high yield could suggest investments in companies where dividends are not secure. There is no one size fits all answer as there are periods when dividend yields might be high or low. But if the yield is skewed to one extreme it raises warning signs.
- Consistency of dividends – Companies which pay a dividend are often deemed lower risk and for income seekers a dividend yield which is consistent is often a sign of a manager being focused on investing in company’s which protect their dividends and are well covered by earnings.
- Diversified Income – An equity income portfolio should have income coming from the majority of the portfolio investments with only a few low or non-yielding investments.
- Consistent style – As with any investment fund an equity manager should have a style which is well defined and strictly adhered to.
- Don’t ignore capital return – Companies which pay dividends may be ex-growth or grow slower but a good dividend payer can grow its dividend which in turn will help drive share prices higher.
Lowcock adds:
“Equity Income has been getting a bad press recently. Investors have been more focused on growth so the sector has suffered a period of underperformance in recent years, even so the power of dividends and compounding means the sector continues to hold its own over the long term.”
“This is the power of equity income, it isn’t a get rich quick approach but the investment strategy allows for steady returns for investors. It is hard to know when the markets return to income stocks but in the meantime investors can benefit from some excellent managers in this space.”