Many years ago, in a previous life, The Armchair Trader interviewed Gervais Williams for an article in The Financial Times. This was back before the advent of mobile phones, when Williams was managing the Gartmore Growth Opportunities Fund and your correspondent was toying with a move to covering emerging markets in Hong Kong.

LF Miton fund tops Sanlam coveted White List

Williams has recently topped a survey conducted by Sanlam UK that has looked at the best all-rounder fund managers in the UK equity income segment. Williams’ LF Miton UK Multi Cap Fund remains in first place, topping the so-called ‘White List’ established by Sanlam of funds that have established their ability to produce superior total returns over five years. He co-manages the fund with Martin Turner. Since it qualified for entry to the White List in January 2017, it has only ever placed first.

“Our Income Study illustrates the strength and breadth of a hugely popular investment option for British investors,” explains Philip Smeaton, Chief Investment Officer at Sanlam UK. “Given the current low interest rate environment, there are a lot of reasons to be excited about UK equity income funds, with a number of them currently yielding between 4% and 6% a year.”

Surveys like this are also of interest as they help to highlight the funds which are simply not doing what they are meant to. This is an issue of immediate concern to investors, as actively managed funds like these are much costlier in terms of fees than passive funds like ETFs. Hence, you would expect them to do well. When they aren’t, it is time to remove them from your portfolio.

Thus, the Black List, which Sanlam has been brave enough to publish, also makes interesting reading. This includes the Ardevora UK Income Fund, which has dropped into the Black List after previously having a solid position in the middle of the Grey List (the temporary home for managers with an out-of-favour style or an early warning signal for a fund in decline). Both this fund and fellow laggard, UBS UK Equity Income, have been punished for disappointing performance.

There are, however, some serial offenders which Sanlam can point to with confidence, among them the Scottish Widows UK Equity Income Fund and the HSBC Income Fund. It just goes to show that having a big name brand does not actually equate to decent performance from your funds!

Sanlam’s Smeaton also had this to say:

“There is a risk that investors purely motivated by yields could be falling into a trap. Chasing yields is a dangerous game – as eager investors pile into these stocks it becomes an ever-larger portion of the index. Today this situation is exacerbated because risk-blind passive funds are then forced to buy more. Ultimately, this is pushing up the valuations of high dividend players to unsustainable levels. Smart managers with longer term horizons will know to avoid these stocks as they are over-priced.”

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20th February 2018
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