The study monitors the performance of all UK equity income funds every six months.

The Income Study categorises the funds into White List, Grey List, and Black List:
 
The White List is the select group of funds that have established their ability over five years to produce superior total returns.
 
The Grey List can be a temporary home for a manager with an out-of-favour style or an early warning signal for a fund in decline.
 
The Black List is for consistent under-performers and may indicate the need for remedial action.
 
In order to determine the best and worst performing funds, Sanlam UK analysed the performance against the following metrics:

• Absolute income generated over the past five calendar years
• Capital growth for each of the past five 12-month periods
• Volatility over the past five years

The firm’s findings are outlined below.

The White List
 
The Slater Income Fund, run by Mark Slater, has placed first having performed strongly since first appearing in January 2017. Its high-ranking dividend yield, consistent performance and moderate volatility has helped to knock Miton UK Multi Cap Income Fund off the top spot, which now ranks third.
 
Adrian Frost’s Artemis Income Fund which had a large fall in 2017 and placed 30th a year ago. Since then, the fund has delivered on its mandate and, despite not paying the highest dividend income, it has managed to perform consistently over the last two studies. The fund is now in fourth position, having moved up 15 places.
 
The Schroder Income Maximiser Fund has moved up 18 places last placing in the White List in January 2017. This was helped by the dividend income element which has been strong over the period past six months.
 
Other new entrants include the Schroder Income Fund. The fund, managed by Kevin Murphy and Nick Kirrage, has moved up 38 places in the review and ranks first in performance, helped by a respectable yield of 3.4%.
 
The Aviva Investors UK Equity Income Fund and the FP Miton Income Fund are also new additions, having been close to the top of the Grey List in the previous study. Finally, the Insight Equity Income Booster Fund has made its first appearance ranking 14th following its recent five-year anniversary. The fund, managed by Tim Rees, benefited from a high dividend income paid over the period and a lower standard deviation.
 
The Grey List
 
The Royal London UK Equity Income Fund, managed by Martin Cholwell, ranked 22nd. The fund has had a poor two-year period in terms of calendar performance. Thomas Moore who manages the SLI UK Equity Income Unconstrained Fund which also dropped, due to a higher volatility driving the fund lower.
 
The Premier Monthly Income Fund dropped into the Grey List for similar reasons. This pattern of under- and out-performance is consistent over previous years too, and has resulted in some of these funds producing a high standard deviation figure. It is this volatility which is to blame for the Premier Monthly Income Fund and the SLI UK Equity Income Unconstrained Fund falling 18 and 17 places respectively.
 
The Threadneedle UK Equity Income Fund’s positioning also worsened over the period. The fund, run by Richard Colwell, dropped another eight places into the Grey List and, unlike some of its peers, this is predominantly due to disappointing performance over the last period, which has led to it ranking 42 out of the 61 funds.
 
Other large movers were the Franklin UK Equity Income Fund, managed by Ben Russon, Colin Morton and Mark Hall. The fund dropped 20 positions due to poor numbers. The situation was similar for Chris White, the manager of the Premier Income Fund which also had poor numbers with a higher volatility.
 
The strongest positive mover is the Ardevora UK Income Fund, which has climbed 31 places from the Black List to the top of the Grey List. The fund has tended to deliver consistently on a calendar year.
 
In contrast, Francis Brooke’s Troy Income Fund has had a significant negative move. Whilst producing a respectable level of income in January 2018’s study, and a low volatility during the 5-year period, this fund has struggled due to stock-specific issues over the last two calendar periods. The fund, which was in the White List two studies ago, is now ranked 38 at the bottom of the Grey List.
 
The Black List
 
As with the top performers, there has not been a wide divergence among the bottom ranks. The Black List continues to have the same constituents, with the exception of three funds.
 
The first is the Unicorn UK Income Fund which has dropped to the Black List after being in the White List in July 2017. The fund, managed by Fraser Mackersie and Simon Moon, suffered from stock-specific issues which have affected the most recent numbers, leaving the fund at the bottom of the peer group.
 
The second new constituent is the Schroder UK Alpha Income Fund continuing its recent fall in the rankings. Performance was the key driver for the 12-position fall, as both 2016 and 2017 have been challenging.

The third added fund is the Fidelity Enhanced Income Fund which has delivered disappointing performance numbers.
 
Laggards that continue to find themselves near the bottom of the Black List include the Invesco Perpetual Income & Growth Fund, the M&G Dividend Fund, the HSBC Income Fund and the Aberdeen UK Equity Income Fund.
 
Philip Smeaton, chief investment officer at Sanlam UK, said: “Increasing outflows from the UK Equity Income sector suggests that the mood of investors is changing. 

“In January 2018 the value of investments in the sector fell at a faster rate than those in any other sector.

“However, even after recent outflows, our Income Study illustrates that the sector remains an attractive place for those seeking an income from their investments.

“Dividend payments from FTSE100 companies in 2018 are expected to total £87.5 billion which equates to a yield of 4.4% – a far higher return than is available from cash savings and bonds. But are these high

yields sustainable?

“The recent rise in the dividend yield of several companies is attributable to a sharp fall in their share prices, leading investors to question whether the high payments can be maintained.

“One way for investors in funds to mitigate the risk from FTSE100 dividend concentration is to consider funds that contain the shares of a high proportion of small and medium sized companies.

“Although smaller companies lack the scale and breadth of operations that characterise many of the largest enterprises, they offer investors an opportunity to avoid over-exposure to the risk of dividend cuts by a small number of top-payers.”

He added: “One thing that is clear is that fund managers who appear in the White List are adept at taking advantage of a volatile corporate and economic climate.

“Looking ahead, markets will accommodate both the Brexit outcome and, in the longer term, the expected interest rate rises in the coming years.

“In the meantime, UK equity income funds are likely to remain a favoured source of income at a level unavailable elsewhere.”