Prior to the pandemic, £3.6 billion Evenlode Income Fund (BD0B7D5) was lauded by various fund experts as a good place to put your money. On a five-year basis, it has been in the top 25% best performing funds for its category, achieving the much sought-after top quartile status.

Unfortunately, recent performance has disappointed with the fund in the bottom quartile for the past six and 12 months, according to FE Fundinfo. Investors will naturally be asking if something has changed or if it is simply bad luck.

The drop in performance is down to the market rotation into value stocks from November 2020 and Evenlode having a focus on quality growth stocks, which are currently out of favour.

Manager Hugh Yarrow says the fund has lagged the market because it has no exposure to resource companies and only small exposure to financials, both of which have rallied in recent months. Furthermore, the fund’s large weighting to consumer goods companies such as Unilever (ULVR) and PepsiCo has acted as a drag as that sector has underperformed.

It’s only stocks with smaller positions in the portfolio which have rallied since the start of November, with some surging over 25% including recruiter PageGroup (PAGE), caterer Compass (CPG) and advertising firm WPP (WPP).

An inevitable question is whether or not the fund should have an allocation to miners given their strong cash flow, underpinned by significant structural growth in demand for the metals they produce as we enter what looks to be a booming decade for commodities.

The likes of Anglo American (AAL), BHP (BHP) and Rio Tinto (RIO) have seen their share prices soar, and all offer dividend yields at 4.5% or above.

However, Yarrow has faith in his ‘stay the course’ approach compared to the extremes seen in investors chasing ‘unprofitable US technology shares’ and then ‘asset-intensive, economically sensitive’ stocks like banks and miners.

He insists that ‘many economically attractive, market-leading companies with good potential for long-term growth have been left behind in this rally’ and are offering attractive dividend yields and potential for future share price growth, with some of these stocks being shunned due to the recent rise in bond yields as they’re considered too ‘bond-like’.

Shares believes investors should stick with the fund and agrees with Yarrow that the portfolio contains some attractive businesses with good long-term prospects.

DISCLAIMER: Editor Daniel Coatsworth has a personal investment in Evenlode Income

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