Just four funds have consistently been at the top of the IA UK Equity Income and IA Global Equity Income sectors for the information ratio for the past decade, Trustnet research has found.
The information ratio is a risk-adjusted measure designed to reflect the skill of a fund manager in generating excess returns relative to a benchmark and is used to evaluate the performance of an investment portfolio
The ratio takes the portfolio's active return (the difference between the portfolio return and the benchmark return) and divides it by the tracking error, which is the standard deviation of the active return. A higher ratio indicates a better risk-adjusted performance.
In this series, Trustnet is looking for funds that have consistently had the highest information ratios relative to their average peer in each of the past 10 calendar years as well as 2023 so far. We’ve already looked at the IA UK All Companies sector and the IA Global sector, so now we examine their equity income counterparts.
In the IA UK Equity Income and IA Global Equity Income sectors, just four funds have been top quartile for the information ratio in more than half of the 11 periods examined in this research and they can be seen in the table below. All have been top quartile in six of the 11 periods.
Source: FinXL. Data to 31 May 2023
The highest return of these funds over the entire period we looked at (the start of 2013 and the end of May 2023) came from Fidelity Sustainable Global Equity Income, which made 287.6%. As well as being in the top quartile for information in six of the 11 periods, it has always stayed out of the bottom quartile.
In fact, that is not just the highest return of the four funds above – it’s the highest return of the entire IA Global Equity Income sector over this period.
The fund invests in higher quality sustainable businesses at reasonable valuations, low financial leverage and predictable, stable business models.
Its top holdings are companies such as US insurer Progressive Corporation, Dutch information services company Wolters Kluwer and UK consumer goods giant Unilever. It has no exposure to some of the best-known global names such as Apple, Microsoft and Tesla.
JPM Global Equity Income made the third highest return of the whole IA Global Equity Income sector for the period we reviewed, gaining 234%.
It is another fund that has not been in the bottom quartile for information ratio in any of the 11 periods examined, but is the only one to fall out of the top quartile on this metric in 2023 so far (sitting third quartile).
The fund looks for companies with sustainably high dividends and/or sustainable dividend growth potential. Its top holdings include the likes of Microsoft, Taiwan Semiconductor and Coca-Cola.
Aviva Investors Global Equity Income fund made 223.4% over the period under review, the fourth best return in the IA Global Equity Income sector. However, it was bottom quartile for information ratio in two of the 11 periods.
Commenting on the fund and the current market environment, its managers recently said: “Overall we view the portfolio as offering attractive resilience characteristics – in particular our focus on free cash flow generation, allied to companies with sustained growth in their dividends we believe offers the best protection against the current volatile market backdrop as well as elevated inflationary pressures.”
The only member of the IA UK Equity Income fund to make it onto the shortlist for consistently being the top quartile for the information ratio is Janus Henderson UK Responsible Income.
Commenting on its strong performance, the FE Investments team said: “Since the manager’s decisions are not driven by bets on the economy, it is good to see that stock-specific issues have tended to be the main driver of portfolio performance in the long run. Income has also been a major contributor to returns, with payments being well above the sector average.”