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How the worst funds in almost every sector are beating the best UK equity income funds in 2020

28 September 2020

Trustnet research finds that the average top-quartile UK fund is still far behind the returns made by the bottom quartile of most other peer groups.

By Gary Jackson,

Editor, Trustnet

The underperformance of UK equity income strategies in 2020 has been so stark that the best funds in the peer group are still behind the worst performers of almost every other Investment Association sector, Trustnet analysis shows.

UK equity income has been at the epicentre of the coronavirus crisis, after companies across the market postponed, slashed or scrapped their dividends. Some of the country’s dividend stalwarts, such as the oil majors and the banks, were among these.

This has contributed to the dramatic underperformance of the UK stock market on the global stage. While the MSCI AC World index has eked out a 2.63 per cent total return over 2020 so far (and Chinese equities are up close to 20 per cent), the FTSE All Share index is down more than 20 per cent.

Performance of indices over 2020

 

Source: FE Analytics

As the chart above shows, this puts it far behind other major indices. The Euro STOXX, which is also trailing global equities, is down just 4.53 per cent over the same period.

Of course, this is reflected in the performance of the Investment Association fund sectors.

FE fundinfo data shows the UK sectors have made the lowest average returns of all 39 peer groups. IA UK Equity Income is at the very bottom of the table with a 22.37 per cent average loss, followed by IA UK All Companies (down 18.35 per cent), IA UK Equity & Bond Income (down 13.07 per cent) and IA UK Smaller Companies (down 11.96 per cent).

In contrast, the average fund in the IA Technology & Telecommunications sector has made a total return of 27.12 per cent as tech stocks continued their strong run after emerging as ‘coronavirus winners’ that benefited from factors such as increased remote working and online shopping.

However, the picture looks even worse for UK funds when we looked at the average returns inside each sector’s four quartiles for returns in 2020.

The average first-quartile fund in the IA UK Equity Income sector has made a loss of 13.86 per cent this year. This is somewhat better than the 30.19 per cent fall that the average bottom-quartile UK equity income strategy has endured but compares rather miserably with the returns achieved by even the worst funds in other peer groups.

 

Source: FE Analytics, as of 23 Sep 2020

The table above shows the average year-to-date return of each Investment Association sector where quartile rankings are appropriate. In addition, it reveals the average total return made by each quartile.

There’s a lot of data in that table, but a closer look at it highlights how even picking one of the best UK funds this year has still given investors a weaker return that they would have received from the worst performing members of other sectors.

The average top-quartile member of the IA UK Equity Income sector’s 13.86 per cent fall this year is behind the average bottom-quartile return of 29 other fund peer groups.

As the table shows, investors holding a bottom-quartile IA Technology & Telecommunications fund will still have made an average total return of more than 15 per cent.

An average return of more than 5 per cent has also been seen in the bottom quartiles of the IA China/Greater China, IA Asia Pacific Including Japan, IA UK Index Linked Gilts and IA UK Gilts sectors.

Investors in the bottom quartile of areas as diverse as Japanese equities, emerging market debt and European smaller companies have faced lower losses than investors who picked the average top-quartile UK equity income fund.

Even UK funds without a bias towards income are failing to compete with other sectors. The average fund in the top quartile of the IA UK All Companies sector has made a loss of 8.10 per cent over 2020 so far, which is lower than bottom quartile of 20 other peer groups.

Of course, all of the figures above are averages and this means that some individual funds will have performed stronger or weaker than the rest of their quartile. This is the part of the article where we would normally highlight the exceptions to the rule and reveal which funds have performed especially strongly despite the overall trend.

However, that’s difficult to do with this research and the generally weak state of the UK equity market.

Every single member of the IA UK Equity Income sector has made a loss over 2020 so far, with the best performer being LF Miton UK Multi Cap Income with its 5.97 per cent loss.

This is a strong result when compared with the losses recorded by its peers but still doesn’t stack up well with the average return from the bottom quartiles of many other sectors in the Investment Association universe.

Performance of funds vs sector over 2020

 

Source: FE Analytics

In the IA UK All Companies sector, only two funds have managed to make a positive total return: CFP SDL Free Spirit, which is up 1.63 per cent, and Marlborough Multi-Cap Growth, which has made 0.56 per cent.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.