Fund managers in general have not shone this year when it comes to the UK equity income sector, if you judge their performance using a certain benchmark.

I’ve looked at data from FE Fundinfo and found the top performer in the UK equity income space for funds was a tracker product, not one where a fund manager is actively picking what they believe to be the best stocks.

Vanguard FTSE UK Equity Income Index (B59G4H8) has a 9.8% total return from 1 January to 25 May, which is a combination of share price gains/losses and dividends. It tracks the performance of a basket of stocks from the FTSE 350 index which pay a dividend.

Investors pay a fee for a fund manager to beat the market and when this doesn’t happen, it’s only natural that people start to look more seriously at passive funds where fees are typically lower.

The Vanguard fund performance narrowly beat the actively managed ASI UK High Income Equity (B7FTRJ8) which has a 9.7% return year-to-date; but was considerably better than the likes of Fidelity Moneybuilder Dividend (B3LNGT9) which returned 4.8% and Royal London UK Equity Income (B3M9JJ7) with 0.7%.

Am I being unfair by saying fund managers haven’t done well in this space? Probably. After all, a good handful of actively managed UK income funds have delivered a positive total return this year, which is better than large parts of the global equity market. I’m also comparing their performance to an index that isn’t traditionally used as a benchmark for UK income.

Most funds fishing for the dividend opportunity on the UK market benchmark themselves against the IA UK Equity Income sector, albeit that’s just the average of all funds in the sector. It has returned -0.9% year-to-date.

If you look at investment trusts for UK equity income, only one beat the Vanguard fund this year – Value & Indexed Property Income Trust (VIP) which returned 13.9%.

Close behind the Vanguard performance is City of London Investment Trust (CTY) with a 9.3% return – much better than we’ve seen from this company in recent years. 

Funds shouldn’t really be judged on a five-month period. Five years is a better way to tell which ones are outperforming because of skill rather than luck.

On a five-year basis, the Vanguard product ranks 34th out of 101 relevant active and passive funds and trusts. However, its 19% return did beat the investment trust UK equity income sector (18.8%) and Investment Association’s UK equity income sector (14.9%).

So why have active managers lagged a passive fund this year? You could argue there isn’t a market tailwind for them to ride and it’s much harder to pick the select few stocks going up. Yet challenging market conditions should be when the best fund managers show their skills at clever stock picking.

They’ll have to work harder, but once the markets settle down try to find the ones that did well. These are the names to watch. I would certainly feel more comfortable parking my money with someone who can hold their own in a bad market than simply give it to anyone who automatically does well just because markets are rising.

‹ Previous2022-06-01Next ›