Two UK equity income funds as well as those hunting yield further afield are among the boutique funds that have won a place on Bestinvest’s ‘investment-led’ buy list.
The Tilney Group-owned platform has just published its latest list of top-rated funds, which is based on its research team’s face-to-face meetings with managers, performance attribution and analysis of their processes.
Some 83 funds from 44 groups have made it onto the list, with big names such as Fundsmith Equity, Jupiter European and Liontrust Special Situations being featured.
However, a number of funds from small, niche boutiques that specialise in one particular area of the market have also been included. Below, we look at four of these funds that have an equity income approach.
Performance of fund vs sector and index since launch
Source: FE Analytics
Starting with UK equity income, TB Evenlode Income is one of the funds that Bestinvest has among its buy list’s ‘premier selection’ – meaning it is one of the strategies that the platform believes deserves particular attention. The fund is one of just two portfolios run by Evenlode.
FE Alpha Manager Hugh Yarrow, who runs the £2.5bn fund alongside deputy Ben Peters, has a high-conviction approach that concentrates on quality stocks with a sustainable and growing dividend, subject to a valuation overlay.
This tends to result in a quality bias although the portfolio does typically have exposure to more cyclical parts of the market. Historically, the fund has taken significant exposure to consumer goods, technology and industrials with less weight in the financials, mining and oil & gas sectors.
“The fund has demonstrated strong downside protection over its history and has also been less volatile than the market and the peer group,” Bestinvest added.
“Investors should note that the fund has a yield broadly in line with the market as Yarrow runs it with a total return mindset. Consequently, it sits in the IA UK All Companies sector rather than the IA UK Equity Income sector.”
Bestinvest said the fund could be a good option for investors seeking multi-cap exposure, a portfolio that is relatively nimble compared with its peers and a good track record of real dividend growth.
TB Evenlode Income has an ongoing charges figure (OCF) of 0.90 per cent and is yielding 3.40 per cent.
The other boutique UK equity income strategy on Bestinvest’s buy list is FE Alpha Manager Francis Brooke’s £2.6bn Trojan Income fund. It has made a 213.95 per cent total return since launch in September 2004, outpacing the 159.99 per cent from its average IA UK Equity Income peer and 178.63 per cent from the FTSE All Share.
Like all of the funds run by Troy Asset Management, Trojan Income focuses on capital preservation. This leads Brooke and deputy manager Hugo Ure to quality, defensive companies such as Unilever, GlaxoSmithKline and Imperial Brands, as well as a willingness to build cash if the market looks overvalued.
“This approach is reflected in its performance – during the turbulent markets of recent years it has been one of the least volatile funds in the sector, but also one of the top performers,” Bestinvest said.
“While the income from the fund may have historically been lower relative to the UK income peer group, Brooke places a lot of emphasis on growth in the income stream with the fund having delivered dividend growth in every year since launch, with the exception of 2009.”
The platform said investors looking for a large-cap emphasis, a reasonable yield, a focus on income growth and defensive characteristics could find this fund attractive. It also on the ‘premier selection’.
Trojan Income has a 1.02 per cent OCF and is yielding 4.17 per cent.
Performance of fund vs sector and index since launch
Source: FE Analytics
Moving away from the UK and Bestinvest has included the LF Morant Wright Nippon Yield fund. Morant Wright is a specialist Japanese equity boutique, with a team of senior veteran Japanese investors who have spent time at bigger institutions such Schroders, F&C (now BMO) and Cazenove.
“The team aims to identify companies that have strong balance sheets, which they believe are currently undervalued,” Bestinvest said.
“In addition, the fund seeks to generate a dividend yield above that of Japan’s Topix index, making it an option for investors wanting to draw an income as well as those looking to achieve long-term capital growth.”
This £588m fund is another one of the platform’s ‘premier selection’. Over the past 10 years, LF Morant Wright Nippon Yield has made a 195.53 per cent total return; this compares with a 110.51 per cent gain for the average IA Japan fund and a 108.79 per cent rise in the Topix.
While the portfolio tends to have a high weighting to mid and small-cap companies, the process behind it puts emphasis on valuation, balance sheet strength and dividends. This means the fund is generally more defensive than a typical Japanese smaller companies fund.
Bestinvest said it could be appropriate for investors seeking a yield in excess of the Topix, a value investment style and a focus on small- and medium-sized quality companies.
LF Morant Wright Nippon Yield has an OCF of 1.18 per cent and 2.73 per cent.
Performance of fund vs sector and index since launch
Source: FE Analytics
The final boutique equity income strategy to make it onto the list is MI Somerset Emerging Markets Dividend Growth. While this is included on Bestinvest’s buy list, it was not one of the highlighted ‘premier selection’.
Somerset Capital is a specialist emerging markets investment house that also runs a growth-oriented global emerging markets fund, a growth fund that excludes tobacco stocks and a small-cap strategy.
MI Somerset Emerging Markets Dividend Growth is headed up by FE Alpha Manager Edward Lam with Edward Robertson as deputy.
The approach centres around companies listed in the developing world that are likely to maintain or grow their dividend. However, Lam avoids companies that are paying a high dividend but are of poor quality, which means the yield is often lower than that offered by its rivals.
MI Somerset Emerging Markets Dividend Growth has a 1.12 per cent OCF and is yielding 3 per cent.