UK - The essential ingredient for outperformance among UK equity income fund managers over the year to October 1, 2001 has been experience, according to Standard & Poor's latest sector report.
The ratings agency believes it was manager skill in sector selection, capitalisation exposure and stock choice that really counted in achieving performance success.
Over the last 12 months the median equity income fund slid 12%, the median for those funds based on a mix of equities and bonds dipped 6% and the median UK growth fund tumbled 23%. Three-quarters of the income funds outpaced the FTSE Actuaries All Share index.
Four out of the 30 fund managers interviewed achieved a positive return. If the analysis is extended to a three year review more experienced managers appear among the leading performers, such as ABN Amro and Invesco Perpetual.
Although a predominantly “value” style features most frequently among the 12 leading funds over the three year period, three funds are managed by a barbell approach, combining low yield, high quality growth stocks with high yielding equities, convertibles or fixed interest, while a further two are based on a pragmatic mix of growth and value stocks.
All of these leading funds have achieved a yield premium over the index – ten of them increasing their distribution payout on the previous year. Just five of the funds reviewed a year ago managed to outpace the index as well as maintain a yield premium.
Of the 37 funds passing the performance screen for the report, two achieved AAA rating, 15 attained AA, while a further 17 qualified for A rated status. ABN Amro Investment Funds’ Equity Income Fund and Jupiter High Income Fund achieved AAA rating.
Two funds also achieved an improved rating: HSBC Investment Funds – Income Fund and Merrill Lynch UK Income Fund, both moving to AA rated status.
Commenting on the latest report, Linda-Jane Coffin, director and European head of equity research at S&P said: “In pursuit of growth and global recognition, companies nowadays are much more likely to cut or abandon dividends than formerly.
“Our research suggests there is no simple answer to which style is best. It is a matter of appraising different managers’ approaches to changing market conditions and being selective. Experience and pragmatism are prime considerations.”
Peter Fuller, director and head of the UK equity analyst team added: “Investment style shows only marginal positive correlation with performance success over the latest 12 months we have reviewed.
“What has virtually defined the most successful managers has been their number of years’ investment experience.”
By Janet Du Chenne
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