The £53.7m Santander Enhanced Income Portfolio has taken the top spot in Sanlam UK’s latest White List, part of the group's 30-year-long study into the UK equity income sector, following a difficult year for dividend strategies.
Sanlam’s Income Study considers funds in the IA UK Equity Income sector with a market cap of at least £20m and ranks them on seven criteria – including performance, volatility and income – with the most recent period of performance receiving a greater weighting. It then divides these funds into three groups: the White List, the Grey List and the Black List.
Its White List contains a select group of funds that have established their ability to produce superior total returns over five years, while the Grey List can be a temporary home for a manager with an out-of-favour style or an early warning signal for a fund in decline. Finally, the Black List is for consistent underperformers and may indicate the need for action.
In the latest study, the four FE fundinfo Crown-rated Santander Enhanced Income fund – overseen by Robert McElvanney – moved up from second place in the previous edition published last July. It had a yield of 4.3 per cent last year and has returned £26.90 for every £100 invested over five years.
It overtook Robin Geffen’s £345.6m Liontrust Income fund after delivering alpha against its peers in 2020 and strong returns in 2019.
Liontrust Income fell to second place in the latest study, but Sanlam’s analysts noted that the strategy continues to deliver strong performance and is consistently first and second quartile across its volatility, income and performance criteria.
Source: Sanlam UK
Third-placed was ASI UK Income Equity, managed by Charles Luke, having climbed 13 places higher thanks to top-declile performance and low volatility.
Furthermore, Threadneedle UK Equity Income, Lazard Multicap UK Income and Allianz UK Equity Income all re-entered the White List after falling into the Grey List in the last study.
Falling into the Grey List this time around was Fidelity Enhanced Income, Fidelity Moneybuilder Dividend, Man GLG Income and Premier Miton UK Multi Cap Income.
Most funds in the Grey List have retained their place, however, with some slight shifting, the Sanlam analysts noted.
Three funds made strong recoveries and moved up into the Grey List after a prolonged period in the Black List, including JOHCM UK Equity Income, VT Downing Monthly Income and Merian UK Equity Income.
Source: Sanlam UK
Sitting at the bottom of the Grey List were MI Chelverton UK Equity Income and Unicorn UK Income, both suffering from “high standard deviation over the period analysed and disappointing returns in a market that has been exceptionally volatile”.
Meanwhile, the Black List remained relatively consistent, Sanlam noted.
Nevertheless, it highlighted some anomalies including the Mark Slater’s Slater Income fund, which having fallen slowly from the White List into the Grey List, now sits in the Black List for the second study in a row.
Another anomaly is the Marlborough Multi Cap Income fund, which has fallen 10 places and is the third study in a row in which it has dropped position.
“This was mainly driven by poor selection in small and mid-cap equities detracting from performance and increasing volatility,” Sanlam analysts said.
Source: Sanlam UK
Phillip Smeaton, chief investment officer at Sanlam Private Wealth, said the ‘hunt for yield’ was already proving difficult for investors before 2020 but was dramatically amplified following the Covid-19 outbreak.
“Reduced revenues and profits as a result of the pandemic led to a significant number of dividend cuts by UK and European companies, while government lockdowns severely impacted businesses in leisure, tourism, air travel, retail, and construction,” he said.
“For equity income investors, this has meant some funds have offered substantially reduced yields to investors during 2020 as underlying company holdings focused on rebuilding payments from 2021 onwards.”