For investors there has to be a belief that the cycle is moving away from small and mid-cap stocks to large cap stocks, and if this is the case then in theory this fund should benefit.
There are over 400 UK Equity Growth and Income Funds; providing investors with access to many different investment styles. So choosing the right fund depends upon understanding their methods and aims.
Performance is part of the equation but equally the management team is crucial. We have met a number of talented Fund Managers, the likes of Standard Life Investments, Neptune, Schroders, Legal and General, Threadneedle and Liontrust (not all of these are in our portfolios).
We have recently met Charles Luke who is the Senior Investment Manager on the Murray Income Investment Trust. Over a five year plus period the trust has significantly outperformed the iShares UK Dividend ETF (which provides a good like for like comparison) but over the short term (i.e. less than five years) it has significantly underperformed.
For investors searching for the yield the trust is paying around 3.88% compared to the ETF which is paying around 4.30%. Turning to the holdings they are not dissimilar but there are differences in the top five holdings. This reflects the ETFs focus on the top 50 dividend payers and the trusts focus on companies offering growth and dividend income.
This provides a clue to the periods of outperformance and underperformance. During 2008 the highest dividend payers were the banks and it was these companies which suffered the biggest falls. As the market has recovered and now is moving to a more normalised environment we have seen the trust fall out of favour significantly underperforming in 2009, 2012 and 2014 to date.
This performance pattern is similar to other large cap focused income funds. The question for any investor is why someone would choose this fund over the ETF option or a multi cap income fund which may deliver better performance and similar income levels.