As many investors will know, a return to the value style caught a number of managers off-guard last year, particularly in the equity income sector where only five funds from a possible 79 outperformed the FTSE All Share. 
While the index has a higher weighting to resource stocks, oil stocks and financials – all of which outperformed in 2016 – many income funds have shied away from these areas on dividend cover and sustainability issues.
While oil producers Shell and BP are a large part of the FTSE All Share and the dividend-paying roster, traditional mining stocks are not.
Additionally, the currency moves – which saw sterling drop 15 per cent following the EU referendum in June – tended to benefit exporters and internationally facing companies, more of which are found at the larger end of the market spectrum.
Below, FE Trustnet looks at the five equity income funds that outperformed in 2016 despite the challenging investing conditions.
The largest fund to outperform the FTSE All Share last year, the £2.9bn JOHCM UK Equity Income fund returned 16.79 per cent in 2016, just four basis points ahead of the index.
Run by James Lowen and Clive Beagles, the fund, which currently yields 4.29 per cent and has a clean ongoing charges figure (OCF) of 0.81 per cent.
Performance of fund vs sector and benchmark in 2016
Source: FE Analytics
The fund has been a top quartile performer over one, three and 10 years (and second quartile over five years) but has had a tough run in recent years, lagging the FTSE All Share index in both 2015 and 2014.
However, the fund has outperformed the index in three of the last five calendar years and in 2017 so-far the fund is ahead of the index, returning 5.3 per cent so far.
The fund’s top two positions are BP and Shell – taking advantage of the bounce back in the oil price – with HSBC, Barclays and Lloyds among its top 10 holdings.
The fund also includes Rio Tinto in its top holdings and overall is overweight the financial and oil & gas sectors, while slightly underweight basic materials.
Despite macroeconomic issues remaining, in its latest factsheet, the managers noted: “We are very encouraged that we continue to find new investment ideas on undemanding earnings multiples and attractive dividend yields, across different parts of the market.”
Five crown-rated, £2.2bn Jupiter Income Trust was a calendar year, top quartile performer in the IA UK Equity Income sector in 2016: the first time in the last 10 years for the fund.
The fund returned 19.56 per cent in 2016, beating the index by 2.81 percentage points and for the fourth year in a row.
Performance of fund vs sector and benchmark in 2016
Source: FE Analytics
As a result, the fund is a top quartile performer in the IA UK Equity Income sector over one and three years, though over the last decade it has lagged with a tough period during and in the following years after the financial crisis in 2008.
It should be noted that manager Ben Whitmore has only managed the fund since 2013 and has yet to underperform the FTSE All Share index in a calendar year.
The fund has 41 holdings in the portfolio with BP, HSBC, Aviva and Standard Chartered among its top 10 holdings, which all performed well last year. It has a yield of 3.5 per cent and an OCF of 0.94 per cent.
Also outperforming last year was the £1bn Schroder Income Maximiser run by FE Alpha Managers Nick Kirrage and Kevin Murphy and head of risk managed investments Mike Hodgson, who oversees the fund’s options strategy.
The fund follows the same strategy as Kirrage and Murphy’s Schroder Income fund, which takes a contrarian approach; option calls are added to supplement the yield.
As such, the Income Maximiser fund has a naturally higher weighting to unloved sectors including financials (30.7 per cent), oil (9.8 per cent) and mining stocks (7.2 per cent).
Last year the fund returned 20.67 per cent, the second highest return in the IA UK Equity Income sector, but had a difficult 2015 on the back of the continued outperformance of the growth style.
The fund is a top quartile performer over one year, bottom quartile over three years but it above the sector average and the benchmark index over five and 10 years.
Schroder Income Maximiser, which aims to provide a yield of 7 per cent through its ability to place call options, has a yield of 6.91 per cent and an OCF of 0.91.
The fund that outperformed the FTSE All Share by the widest margin in 2016 was the £12.3m UBS UK Equity Income fund run by Steven Magill.
The four crown-rated fund returned 35.03 per cent: more than double the FTSE All Share’s return and more than four times the sector average.
Performance of fund vs sector and benchmark in 2016
Source: FE Analytics
The fund has been a top quartile performer over one and three years and has beaten the sector and benchmark over five years as well and 2016 was the fourth year out of nine that the fund has outperformed the FTSE All Share.
The concentrated portfolio (45 stocks) includes Shell and BP as its two largest holdings (13.3 per cent combined) and is 2.9 per cent more exposed to oil stocks than its benchmark.
Its largest overweight is Barclays (5.6 per cent) while Aviva and Lloyds also represent key larger positions than the index.
The fund is 30 per cent weighted to financials, 15.5 per cent to oil and gas and 10.7 per cent to mining stocks – all ahead of the benchmark.
The fund has a yield of 3.2 per cent and an OCF of 1 per cent.
The final fund to outperform in 2016 was the £11.4m HC Charteris Premium Income run by Ian Williams and Nick Taylor.
The fund aims to provide a yield of between 5 and 6 per cent, with the managers combining top-down strategies with bottom-up stock selection.
Due to technical difficulties the fund has been unable to place call options, though it is on the verge of restarting these options, according to Williams, which should improve the yield to the expected level.
The fund returned 18.12 per cent in 2016, the first time it has been in the top quartile of the IA UK Equity Income sector over a calendar year since 2010.
Indeed, HC Charteris Premium Income has only beaten the FTSE All Share in two of the last seven calendar years (29 per cent) – though it should be noted that it is it the only fund not benchmarked against the index (it is benchmarked against the IA UK Equity Income sector).
The fund had a disappointing run from 2012 to 2015 where it was in the bottom quartile of the sector in each calendar year and despite the strong 2016 remains in the bottom quartile over three and five years.
Its largest holding is Rio Tinto (5.2 per cent) with BHP Billiton (5.1 per cent), Antofogasta (5.1 per cent), Polymetal (4.1 per cent) and Randgold Resources (3.9 per cent) rounding out an all-mining top five.
The fund is therefore extremely overweight mining stocks though it also has higher positions than the benchmark in financials.
The fund has a yield of 3.9 per cent an OCF of 1.34 per cent.