standard & poor's announces ratings results of the UK equity income sector players
Credit Suisse saw another of its three UK equity income funds upgraded in the latest Standard & Poor's review of the sector, but the group still lacks a AAA-rated fund in the sector.
The only AAA-rated fund remains the Jupiter High Income fund, managed by Tony Nutt.
Credit Suisse now has three AA-rated funds in the sector after Leigh Harrison's Extra Income Fund saw its rating increased from single A to join Bill Mott's Income and Monthly Income funds.
Despite strong performance in the past three years, Mott's funds were not upgraded. Neither were the funds of Neil Woodford at Invesco Perpetual, which showed similarly strong returns. As with Credit Suisse, Invesco Perpetual has three AA-rated equity income funds, a distinction shared only with Merrill Lynch.
The OM Gerrard Extra Income Fund, managed by Leonard Klahr, also saw its rating increased, moving from single A to AA status to reflect the manager's long experience of equity income portfolios, according to S&P.
The AA rating of the Rathbone Income Fund, once managed by Patrick Evershed and now run by Carl Stick, has retained its AA rating following a period under review. The ratings agency said pressure on Stick, who manages a number of other UK portfolios for Rathbones, had reduced and praised his decisive and thoughtful management.
A number of funds saw their ratings reduced as a result of fund manager movements. Threadneedle saw both its A-rated funds downgraded in the latest review. Its Monthly Extra Income Fund, managed by Jonathan Barber, who took over in June 2002, lacks a demonstrable track record in equity income portfolios, according to the ratings group.
The UK Equity Income Fund also lost its A rating. The fund was recently taken on by former LeggMason equity income fund manager Chris White. He is applying the Threadneedle investment process, which has yet to be proved for UK equity income mandates, S&P said.
Following White's move to Threadneedle, LeggMason Investors UK Income fund, now managed by Andrew Whalley, has also been downgraded. Five funds failed the quantitative hurdle, which examines discrete period performance comparisons over a three-year period, on both an absolute and a volatility-adjusted basis, with only the top 20% of funds in each sector eligible for ratings.
The funds that failed the screen and have lost their ratings are Gartmore UK Growth & Income and Gartmore UK Income funds, the M&G Income fund and the Norwich Union UK Equity Income and UK Income Opportunity funds.
Peter Fuller, S&P's director and head of the UK Equity Income analysis team, praised seven managers: Graham Kitchen and Neil Woodford at Invesco Perpetual; Jeremy Lang at Liontrust; Ian McVeigh at Schroders; Bill Mott at Credit Suisse; Tony Nutt at Jupiter and Carl Stick at Rathbones.
Fuller said: 'Investment conditions over the past year have resulted in some changes within the sector in style and investment allocations. In 2001, we noted that several managers were adopting a barbell approach ' combining low-yield, high-quality growth stocks with high yielding equities and convertibles to achieve their income objective. This year, because equity prices have dipped, there has been some movement to growth stocks offering acceptable dividend yields, as well as a reduction in the exposure to convertibles and preference shares. There has also been an evident shift up the capitalisation range into larger mid-caps and FTSE 100 constituents.'
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