If you’re looking to generate wealth from the stock market it can often pay to be a bit less mainstream with your investments. We’re often told that a sensible approach is to just stick money into a FTSE 100 tracker fund, yet I believe having a proportion of your capital allocated to actively-managed mutual funds is also a good strategy. After all, for the five years to the end of July, the FTSE 100 index only generated a total return (capital appreciation plus dividends) of 41.5%, which isn’t a super-high return.
Today, I’m profiling three under-the-radar equity income funds that have generated excellent returns for investors over the last five years and smashed the returns from the FTSE 100 index. Could these funds help you achieve your financial goals sooner?
Chelverton UK Equity Income
Chelverton is a boutique asset manager that has a particular focus on investing in smaller companies outside the FTSE 100. Its UK Equity Income fund is the top performer in the UK Equity Income sector on Hargreaves Lansdown’s platform, returning an impressive 76.4% for the five years to the end of July. That’s 84% higher than the return from the Footsie. The historic yield on the fund is 4.41% and fees are 0.81% per year through Hargreaves Lansdown.
This fund is certainly unique. Looking at the portfolio, there’s definitely a strong focus on small- and mid-cap dividend-paying companies, with the top five holdings including Games Workshop Group, Babcock International, Ultra Electronics, Tate & Lyle and TT Electronics. While this smaller company focus is clearly working for the portfolios at present, this fund is probably more suited to investors with a higher risk tolerance, given that smaller companies can be more volatile than larger ones.
Franklin UK Equity Income
Franklin Templeton is perhaps not so well known among UK investors. But don’t let that put you off – the American company has been managing investors’ money for over 70 years. Today, it manages over $750bn of client funds, making it a key player in the asset management industry. And its UK Equity Income fund has performed very well over the last five years, returning 57.8% to the end of July, 39% higher than the FTSE 100’s return in that period.
This fund is more of an orthodox equity income fund and the portfolio contains plenty of familiar names. At 31 July, the top five holdings were Royal Dutch Shell, BP, British American Tobacco, Unilever and AstraZeneca. The historic yield on the fund is 3.95% and fees through Hargreaves Lansdown are a low 0.52% per year.
Royal London UK Equity Income
Royal London is the largest mutual life, pensions and investment company in the UK, with funds under management of around £120bn. And its UK Equity Income fund is another that has easily beaten the performance of the FTSE 100 over the last five years, with a total return of 60.4%.
Like the Franklin fund, Royal London’s is quite a traditional equity income fund with large weightings to popular dividend stocks such as Royal Dutch Shell, AstraZeneca, HSBC, BP and GlaxoSmithKline, so it could be a good choice for those who prefer to invest in large-cap companies. Currently, the top three sectors are financials, industrials and consumer services. The historic yield is 3.79% and the ongoing fees through Hargreaves Lansdown are 0.67% per year.
