Personal Finance: Can fund managers meet the computer challenge?

Sector watch

THE INCOME and growth sector (sometimes called the "balanced" sector) is the home of funds aiming to offer investors a rising income plus capital growth. They are the most popular home for any first-time investor looking for a UK fund.

In the runaway bull market, few could match the performance of the trackers. These are funds that invest in those companies that make up the chosen index.

Because trackers simply follow the stock market, the best known trackers, such as those from Virgin, Legal & General, Direct Line and Norwich Union, have slipped into the second quartile - meaning they are still performing above average but they are not in the top 25 per cent of funds. It is a worrying phenomenon that around half the sector's actively managed funds (which charge investors more because a management team selects shares) continue to perform worse than computer-run rivals.

One of the solid, actively managed performers, often recommended by financial advisers, is the pounds 500m Newton Income fund, which has a minimum investment of pounds 1,000 or pounds 50 a month. It is expensive - there is a 6 per cent initial charge, which is being discounted to 4 per cent for lump sums, and a 1.25 per cent annual charge.

Since its launch in 1985, the Newton Income Fund has grown by slightly more than double the notional return of the FT-SE All Share, the index that measures the share price performance of more than 800 of our largest companies. With dividends reinvested, it has averaged an annual return of 17.5 per cent a year.

"Our aim is rising income and capital appreciation from investing in UK equities," says Simon Wombell, Newton's marketing director.

"Our emphasis is on selecting quality companies such as Shell, BT and Glaxo with a little bit of the fund in smaller companies."

Most of the leading performers are heavily invested in the top 100 UK companies. This is because in turbulent markets, they want to be in liquid stocks, those that can be bought and sold easily. Unfortunately, many companies, not just smaller ones, are suffering from poor supply and demand for their shares. This is reflected in widening spreads for many shares between their buying and selling prices.

And what of the future? Surprisingly, the balanced funds are not too gloomy. They still insist that in the long term, equities will do well. Newton Income has just sold its gilts holdings, which made up some 7 per cent of the fund, to have money to put slowly into the market.

It will be interesting to see what happens if the stock market consolidates its bounce-back. Will tracker funds dominate or will more than a handful of active managers have learned how to outperform them?

The top performers

Top income and growth unit and investment trust funds

Over one year % growth

1 CF The Utilities Fund 26.18

2 Dunedin Income Growth (IT) 25.25

3 Newton Income 23.00

4 Five Arrows UK Major Cos (B) 22.65

5 Merchants (IT) 22.48

6 Five Arrows UK Major Cos (A) 21.52

7 Fleming Income & Capital Units (IT) 21.03

8 BWD Balanced Portfolio 17.68

9 Baillie Gifford British 350 17.65

10 Laurence Keen Income & Growth 17.51

Sector Average 10.08

FT-SE 100 15.22

Over three years

1.Govett Geared UK Index 84.47

2.CF The Utilities Fund 80.38

3.Laurence Keen Income &Growth 77.08

4.Fleming Select UK Income 75.98

5.Five Arrows UK Major Cos (B) 69.76

6.BWD Balanced Portfolio 69.24

7.Newton Income 68.27

8.Five Arrows UK Major Cos (A) 68.02

9.Barclays FT-SE 100 67.35

10.River & Mercantile Top 100 64.75

Sector Average: 50.31

FT-SE 100 71.49

Over five years

1.CF The Utilities Fund 127.05

2.BWD Balanced Portfolio 114.57

3.Fleming Select UK Income 109.79

4.Govett Geared UK Index 109.59

5.Barclays FT-SE 100 108.40

6.Aberdeen Prolific UK BlueChip 98.64

7.Newton Income 97.97

8.Perpetual Income 96.48

9.Laurence Keen Income &Growth 95.94

10.Royal&SunAlliance Growth & Income 91.58

Sector Average 72.31

FT-SE 100 107.8

Lump sum, pounds 100 invested. Bid to bid. All figures to 2.11.98.

Source: S&P Micropal

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

SThree: Talent Acquisition Consultant

£22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...

Recruitment Genius: Experienced Financial Advisers and Paraplanners

Negotiable: Recruitment Genius: This extremely successful and well-established...

Guru Careers: FX Trader / Risk Manager

Competitive with monthly bonus: Guru Careers: We are seeking an experienced FX...

Day In a Page

Seifeddine Rezgui: What motivated a shy student to kill 38 holidaymakers in Tunisia?

Making of a killer

What motivated a shy student to kill 38 holidaymakers in Tunisia?
UK Heatwave: Temperatures on the tube are going to exceed the legal limit for transporting cattle

Just when you thought your commute couldn't get any worse...

Heatwave will see temperatures on the Tube exceed legal limit for transporting cattle
Exclusive - The Real Stories of Migrant Britain: Swapping Bucharest for London

The Real Stories of Migrant Britain

Meet the man who swapped Romania for the UK in a bid to provide for his family, only to discover that the home he left behind wasn't quite what it seemed
Cheaper energy on the way, but it's not all sunshine and rainbows

Cheaper energy on the way, but it's not all sunshine and rainbows

Solar power will help bring down electricity prices over the next five years, according to a new report. But it’s cheap imports of ‘dirty power’ that will lower them the most
Katy Perry prevented from buying California convent for $14.5m after nuns sell to local businesswoman instead

No grace of God for Katy Perry as sisters act to stop her buying convent

Archdiocese sues nuns who turned down star’s $14.5m because they don’t approve of her
Ajmer: The ancient Indian metropolis chosen to be a 'smart city' where residents would just be happy to have power and running water

Residents just want water and power in a city chosen to be a ‘smart’ metropolis

The Indian Government has launched an ambitious plan to transform 100 of its crumbling cities
Michael Fassbender in 'Macbeth': The Scottish play on film, from Welles to Cheggers

Something wicked?

Films of Macbeth don’t always end well - just ask Orson Welles... and Keith Chegwin
10 best sun creams for body

10 best sun creams for body

Make sure you’re protected from head to toe in the heatwave
Wimbledon 2015: Nick Bollettieri - Milos Raonic has ability to get to the top but he must learn to handle pressure in big games

Nick Bollettieri's Wimbledon files

Milos Raonic has ability to get to the top but he must learn to handle pressure in big games
Women's World Cup 2015: How England's semi-final success could do wonders for both sexes

There is more than a shiny trophy to be won by England’s World Cup women

The success of the decidedly non-famous females wearing the Three Lions could do wonders for a ‘man’s game’ riddled with cynicism and greed
How to stop an asteroid hitting Earth: Would people co-operate to face down a global peril?

How to stop an asteroid hitting Earth

Would people cooperate to face a global peril?
Just one day to find €1.6bn: Greece edges nearer euro exit

One day to find €1.6bn

Greece is edging inexorably towards an exit from the euro
New 'Iron Man' augmented reality technology could help surgeons and firefighters, say scientists

'Iron Man' augmented reality technology could become reality

Holographic projections would provide extra information on objects in a person's visual field in real time
Sugary drinks 'are killing 184,000 adults around the world every year'

Sugary drinks are killing 184,000 adults around the world every year

The drinks that should be eliminated from people's diets
Pride of Place: Historians map out untold LGBT histories of locations throughout UK

Historians map out untold LGBT histories

Public are being asked to help improve the map