Income Study JANUARY 2016

Transcription

1 Maggie (Magdalena Maria) Laubser ( ), detail from Poplars, nd ( ), oil on cardboard, Sanlam Art Collection. Income Study JANUARY 2016 The latter half of 2015 proved a challenging environment for most markets and asset classes, and UK equities were no exception. Despite a few short-lived upticks, the UK equity market largely followed a downward trajecry from the start of June. In retrospect it is now clear that the increase in volatility that we highlighted in July was only the beginning of the more pronounced market jitters that were still come in the second half of the year. Invesr sentiment, which appeared increasingly nervous as the year drew on, was driven by a diverse array of events, from elections in the UK and abroad, through a dramatic bubble in Chinese equities, the corporate shenanigans at Volkswagen. Those expecting the much debated US interest rate rise, however, were made wait until December, when the Federal At the global macro level it looks increasingly likely that markets will have adjust the US starting tighten monetary policy whilst at the same time the ECB is doing the opposite, the first time since the crisis that such a divergence will have happened. David Horner, fund manager of the PFS Chelvern UK Equity Income Fund Reserve unanimously agreed hike interest rates, creating the start of divergence in central bank policy in the developed world was a tumultuous year, not just for financial markets, but for geopolitics and economics as well. With the UK being home many large international companies, it is unsurprising that the domestic dividend register saw some sizeable shifts o. The third quarter figures in 2015 again showed the dividend growth of the mid-sized companies in the FTSE 250 outstripping that of the larger and more internationally exposed FTSE 100 companies, increasing pay-outs by more than 30 at headline level. But the fate of dividend payments has not just been a matter of company size, but also one of secr origin. The most obvious impact has been on the large dividend paying commodity companies, with Glencore and Anglo American both preannouncing dividend cuts for The fall in commodity prices has, however, also presented some potential opportunities income invesrs, with falling share prices in the energy secr leading at least superficially attractive dividend yields; although some invesrs now question the longer-term sustainability of these dividends. Away from commodities, the return of Lloyds Banking Group the dividend register for the first time since 2008 added over 1 billion the tal UK dividends paid in 2015, constituting 1.3 of all UK dividends paid in the year. With Lloyds in pole position, HSBC was the second largest contribur tal dividend growth in 2015, reinforcing the Forward yield More dividend cuts, particularly in commodity related secrs, are highly likely and hisric fund yields will be a weak guide the actual level of future payment. Francis Brooke, fund manager of the Troy Trojan Income Fund secr s resurgent importance for income invesrs. Whilst the financial secr was certainly one of the drivers of tal dividend growth, supermarkets were notable detracrs. Tesco s dividend cut made the largest dent in the 2015 Change tal third quarter 2015 dividends paid, year-on-year. Source: Capita Dividend Monir

2 INCOME STUDY tals, but Sainsbury and WM Morrison also detracted, with the increased competition from aggressively growing discount sres often cited as the culprit. It is worth noting that, despite the large changes in dividends paid out by companies, the UK Equity Income secr outperformed both the UK equity market and the UK Equity All Companies secr in Invesrs seeking income from the sck market in 2016 must consider not only headline yields, but also the sustainability of dividends. The price volatility that we highlighted in our mid-year review has continued, adding the challenge of finding suitable scks. Many invesrs prefer hand this task a fund manager with a proven track record. The Income Study highlights the funds with managers who have been the most successful at producing income for invesrs over the long term and who have generated strong returns regardless of market conditions. White List: specials There has been a change at the p of the White List, with Fraser Mackersie and Simon Moon s Unicorn UK Income Fund knocking David Taylor and David Horner s PFS Chelvern UK Equity Income Fund off p position. Both funds have a focus on mid-sized and smaller companies, which has helped them outperform their generally larger company focused peer group, as larger companies continued lag their smaller peers in the second half of the year. In addition benefiting from the smaller company tailwind, both funds are also in the p quartile of the study for income generated over the five year period. The highest climber moving in the White List is Michael Clark s Fidelity MoneyBuilder Dividend Fund; a familiar name the White List that temporarily drifted in the Grey List before bouncing back take fourth place in this study with solid recent returns and low volatility over the last five years. Unlike many of the other p performers in this year s study, Clark s fund does not display a strong bias mid and small capitalisation companies. Hugh Yarrow s Evenlode Income Fund also delivered better performance in the second half of the year which helped it re-enter the White List after only six months of exile, but a comparably low level of income generated has prevented the fund climbing higher in our rankings. After a relative weak two years in 2012 and 2013, the Troy Trojan Income Fund, managed by Francis Brooke, has re-established itself in the p half of the White List as one of a small number of funds perform well in both 2014 and Thomas Moore s Standard Life Investments UK Equity Income Unconstrained Fund has managed string gether an impressive four years of very strong performance, and was prevented from moving higher up the White List only by a particularly poor year in 2011 and by the level of volatility in monthly returns. Chris White s Premier Monthly Income Fund and Premier Income Fund both improved slightly on their positions in the mid-year study, with the latter re-entering the White List from the p of the Grey List. Of the three Columbia Threadneedle funds in the White List in the previous study, the Threadneedle UK Monthly Income Fund and the Threadneedle UK Equity Alpha Income Fund have remained in the White List, while the Threadneedle UK Equity Income Fund has slipped just outside the White List. Despite a mediocre year in terms of performance, better long-term returns have seen Martin Cholwill s Royal London UK Equity Income Fund retain its place on the White List. Strong recent performances in 2015 saw the Min Income Fund and the Santander Equity Income Fund enter the White List, with the latter having the highest hisrical twelve-month yield of any White List fund. Grey List Stephen Message s Old Mutual UK Equity Income Fund has experienced one of the more dramatic falls in our rankings since the last study, moving from the White List the botm half of the Grey List, as the concentrated portfolio experienced its first poor year since The JOHCM UK Equity Income Fund, manged by Clive Beagles and James Lowen, experienced a similar fall. Interestingly, despite the two funds underperforming the UK Equity Income secr over the year, both outperformed the broader UK equity market, demonstrating the resilience that the secr can provide. Given the success of the Fidelity MoneyBuilder Dividend Fund, it is not surprising see that Michael Clark s other mandate in the space, the Fidelity Enhanced Income Fund, has made good progress moving up the ranks in the Grey List. The fund employs a call option strategy enhance the income it generates for invesrs, placing it amongst the highest yielding funds in this year s study. Black List Despite continued improved performance under Mark Wharrier, the BlackRock UK Income Fund has again not quite escaped the clutches of the Black List. With performance now p of the Black List for both of the most recent discreet years, the manager is now in a good position take his fund out of the botm fourteen if he can continue perform. Despite generating the highest yield of any fund in the study, the Schroder Income Maximiser Fund sits p of the Black List, having performed amongst the worst in the Income Study in 2015, and thus not making it in the Grey List. Other laggards in 2015 that have found themselves in the Black List include the Scottish Widows UK Equity Income Fund, which again comes in at last place, the HSBC Income Fund and the F&C UK Equity Income Fund. Sanlam Private Wealth Income Study JANUARY 2016

3 Brooks-Robert, East London Harbour, 1963, oil on canvas, Sanlam Art Collection. Don't forget your ISA! Investing in the White List As opportunities reduce your tax bill become increasingly scarce, it becomes ever more important utilise your ISA allowance each year. Investing in the White List Portfolio ISA is the simplest way invest in the White List funds. This portfolio, which is actively managed by SPW, holds a selection of the best UK equity income funds which have featured in the White List. Once you have filled in the application form there is no more paperwork complete. We collect all the dividends for you and can pay them your bank account. For the current 2015/16 tax year, all invesrs can subscribe up 15,240 in a scks and shares ISA. For income tax in 2015/6, all dividends are subject a 10 non-reclaimable rate. However, if you hold them within an ISA there is no further income tax pay. Outside an ISA they would be subject your p marginal rate of income tax. The upper rate of capital gains remains at 28, but investments held within an ISA wrapper remain exempt. An added benefit is the freedom switch the funds held in your ISA at any time, which gives you the opportunity follow future Income Study recommendations. However, many of our clients prefer use the Income Study assist in the selection of their own funds. If you would like details of any of our preferred funds, please get in uch. Remember, on certain funds we are able offer substantial purchase discounts the terms normally available private individuals. So, if you want make a new investment, take out an ISA or switch from an underperforming fund, dealing through SPW is simple and inexpensive: call us on We offer a personal service and do not have a call centre.

4 THE WHITE LIST Top fourteen funds by overall merit Net dividend yield Net income 5 years Total return capital growth and net income reinvested Volatility Fund (Based on 100 investment) Unicorn UK Income PFS Chelvern UK Equity Income Premier Monthly Income Fidelity MoneyBuilder Dividend Troy Trojan Income Rathbone Income Evenlode Income Threadneedle UK Monthly Income Premier Income Royal London UK Equity Income SLI UK Equity Income Unconstrained Min Income Threadneedle UK Equiy Alpha Income Santander Equity Income White List Average (See explanary notes and important information below). Notes: (a) (b) (c) (d) (e) Funds are ranked using seven different criteria based on performance, volatility and the income distributed, with the most recent period of performance receiving a greater weighting. All funds are in the IMA UK Equity Income secr. Performance data is provided by Morningstar on a bid--bid basis with net income reinvested. Volatility is based on five-year performance data. Income is calculated based on 100 invested five years ago. Yields sourced from Morningstar, FT and fund providers and represent the estimated annual pay out. Funds with a value of less than 20m are excluded. IMPORTANT INFORMATION All performance figures used in this document are provided by Morningstar and are quoted on a bid price bid price basis (mid mid for OEICs) ie ignoring initial charges, with net income (dividends) reinvested. Past performance is not a reliable indicar of future results. The value of unit trusts/oeics, and the income from them, can go down as well as up. You may not get back all that you originally invested, particularly in the case of early withdrawal. Invesrs may be subject an initial charge. Any tax reliefs referred are those currently available. Their value depends on the individual circumstances of the invesr. Levels and bases of, and reliefs from, taxation may change. The value of investments may also rise and fall purely as a result of exchange rate changes. In accordance with Financial Conduct Authority rule requirements, we have published a policy which sets out how we manage conflicts of interest. This policy is available on request from our Head of Compliance, or may be viewed on the Conditions section of our website: This newsletter is based on information that we believe be reliable, but is not guaranteed as accuracy and completeness by Sanlam Private Investments (UK) Ltd. Recommendations for individual funds are necessarily made without taking in account readers specific circumstances and requirements and do not constitute investment advice under the Financial Services and Markets Act. Accordingly, readers may wish seek proper professional advice before acting on any information contained in this newsletter. Remember, the Income Study is not personal advice based on your circumstances or a recommendation. If you are unsure about the suitability of an investment for your circumstances please contact an FCA authorised financial adviser.

5 THE GREY LIST Net dividend yield Net income 5 years Total return capital growth and net income reinvested Volatility Fund (Based on 100 investment) F&C Responsible UK Income Threadneedle UK Equity Income RBS Equity Income Fidelity Enhanced Income Aviva Invesrs UK Equity Income Artemis Income Inc Franklin UK Equity Income AXA Framlingn Monthly Income Newn UK Income Schroder UK Alpha Income Smith & Williamson UK Equity Income Rathbone Blue Chip Income and Growth CF Canlife UK Equity Income Santander Enhanced Income Old Mutual UK Equity Income St James s Place Allshare Income NFU Mutual UK Equity Income Liontrust Macro Equity Income Kames UK Equity Income JOHCM UK Equity income Lazard Multicap UK Income Grey List Average THE BLACK LIST Net dividend yield Net income 5 years Total return capital growth and net income reinvested Volatility Fund Schroder Income Maximiser Allianz UK Equity Income BlackRock UK Income SLI UK Equity High Income Jupiter Income Trust JPM UK Higher Income AXA Framlingn Blue Chip Equity Income River & Mercantile UK Equity Income M&G Dividend Aberdeen UK Equity Income Neptune Income HSBC Income F&C UK Equity Income Scottish Widows UK Equity Income Black List Average Past performance is not a reliable indicar of future results. (Based on 100 investment)

6 Past performance is not a reliable indicar of future results. Issued by Sanlam Private Wealth 5 Miles s Buildings, George Street, Bath BA1 2QS I Tel: I Fax: E enquiries@privatewealth.sanlam.co.uk Sanlam Private Wealth is a trading name of Sanlam Private Investments (UK) Ltd which is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales Registered office: 16 South Park, Sevenoaks, Kent TN13 1AN. Sanlam Private Wealth Income Study JANUARY 2016 is