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Advisers have often described UK Equity Income as the premier league of UK equities, the place where star players display their skills to both UK All Companies and Smaller Companies and win supporters through such catchy phrases as "income outperforms growth in the long run".

In this sector of giants, there are four titans - whom the media have dubbed the stars of their generation - best placed to profit from any market recovery. In no order of preference, they are Neil Woodford, who heads up the ₤7.5bn Invesco Perpetual High Income and the ₤5.3bn Invesco Perpetual Income vehicles; Anthony Nutt, who handles the ₤2.6bn Jupiter Income trust; Tineke Frikkee, who runs the ₤2.4bn Newton Higher Income fund; and Adrian Frost, who manages the ₤2.2bn Artemis Income portfolio.

In November 10’s elite club of ₤2bn-plus heavyweights, Mr Nutt has the worst numbers over one and three years. It's not that his fund's high second-quartile returns have been bad, but as Invesco Perpetual has staked out the top decile, it is Mr Woodford who has seen the biggest inflows of the four. Yet Mr Nutt seems unruffled by his current predicament.

“When we get some lubrication into the financial system, the scope for a sharp bounce in valuations ahead of any recovery in the economy is quite strong. If individual valuations are so depressed, there’s a lot to be said for just maintaining the dividend growth and the cash flow. We should have liquidated the portfolio and bought a whole load of gilts, but that wouldn’t have satisfied the dividend requirement, would it?” he asks.

Paradoxically, the weakness of sterling has helped the situation. The pound's dire performance has made UK equities less attractive from a currency perspective, but for investors whose UK dividends are paid in dollars, dollar strength can lend an extra boost to returns.

Mr Nutt points out: “A good proportion of the FTSE 100 dividends is paid in dollars, so a stronger dollar is quite supportive from that point of view. SABMiller announced an interim dividend last month that was pretty much unchanged, but in sterling terms, it was a little more than 36 per cent higher because of the currency.”

The strengthening dollar has also been tied to the falling dollar price of commodities, which has helped the mining sector along to its recent bust. Partly because of the growth in this low-yielding peer group, the past two years have proved a horrible blip for the UK Equity Income sector. Although funds in the peer group have remained enormous – the average portfolio held ₤438.1m on November 10 – the returns, by and large, have not. Growth stocks, including low-yielding miners, have dominated, and dividend payers such as banks and property-related companies have plummeted further.

However, that paradigm reversed this summer in a vicious unwinding of the long commodities trade that had captivated the market over the previous 12 months. Sectors like pharmaceuticals, whose major stocks pay reasonable dividends, started looking even more attractive on a relative basis after years of underperformance. By November 10, UK Equity Income was down 30.4 per cent over one year against 33.3 per cent for UK All Companies.

Even by income standards, Mr Nutt went very underweight mining last year, which helped his relative returns.

“I exited the position in its entirety in July and August 2007 at very good prices. We sold things like Lonmin and Anglo American close to the top,” he says. “We were a little early on things like Xstrata and Antofagasta, but Antofagasta had been in my portfolios for more than a decade. It had delivered everything and more that one could have expected of it. Particularly with funds my size it is difficult to buy right at the bottom and sell right at the top, so we had six months of pretty poor relative performance while we waited for that sector to blow off. With the benefit of hindsight, that was a sensible call.”

Sterling weakness has also come in handy in one of Mr Nutt’s long-term plays, UK pharmaceuticals, which earn much of their revenue in dollars. Both he and Newton Investment Management saw pharma as a particularly attractive theme last year, and returns in Mr Nutt’s fund have responded accordingly.

“During that period we had Antofagasta, we hadn’t had any big pharmaceuticals for more than a decade. At around the end of 2007, we built up a big position specifically in AstraZeneca, and more recently GlaxoSmithKline,” he says.

“We’ve been making money on those positions because the pharmaceutical majors have been strong this year, for a number of reasons. One, there is ample scope for cost reductions at a time when everybody is cutting costs. Second, there is better visibility on pipelines. One can debate that, but that’s how I see it. Third, more recently, there has been better relative return on the dollar as the reserve currency and marked weakness in sterling, which is beneficial for US businesses.”

As Mr Nutt acknowledges, drug development pipelines are still something of an unknown. Healthcare analysts have forecast a dent in AstraZeneca’s earnings at the beginning of the next decade unless the company develops new treatments to replace products coming off patent. But Mr Nutt insists firms are trying to reform their practices to cope.

“The history of the UK pharmaceutical industry has been of a small number of blockbusting drugs leading to the stocks becoming material global players with significant revenue growth. Healthcare budgets around the world have been unable to afford the products and reluctant to pay the absolute premiums. The model of producing a new compound and charging whatever you like for it has been significantly undermined,” he says.

“But the companies are beginning to recognise that. AstraZeneca has led the movement in this country in terms of trying to change the model. The whole industry has experimented with new compounds to stop the generics from affecting them by manufacturing the same compounds, producing the same patent and undermining the whole research and development cycle.”

Another controversial area in which Mr Nutt has kept a large weighting is financials, which constitute more than 20 per cent of his portfolio. He argues if investors are selective enough, there are bargains to be found in the sector apart from the ailing banks.

“Financials have made up typically 33 per cent of the market. A number of the financial stocks have also displayed much more defensive merits than the markets would have you believe. A good example of that is Icap, the inter-dealer broker. This is a company that has been trading its socks off, and yet the market has significantly derated it because the view is the client base and increasing regulation will undermine the model,” he says.

The thornier part of the financials exposure is Mr Nutt’s retention of big-name casualties in the banking, construction and property sectors.

“We’ve a little more than 4 per cent in banks. I have primarily just Lloyds TSB and Barclays in the Income fund. We sold one of our three housebuilders close to the top, we sold one of them halfway down and we held on to one of them, which has the strongest balance sheet in the sector, and I’m comfortable with that call,” he says.

“We had a bigger representation in the property sector, which was largely removed throughout the summer because I see it as late cycle. We were slow in exiting the sector, but there will be a material difference in the final performance outcome between the small, highly geared property funds, where people have been out shopping rather than investing, and the very competently run, big property stocks. The very highly geared, lower-quality retail models were going to be far less defensive than the Land Securities of this world. Ideally, we could have eliminated all those property positions, as we did in the mining sector, some time ago, but the feeling was the dividends were secure and the valuations were modest.”

Unlike some of his peers, Mr Nutt does not seem concerned the UK will enter the type of deflationary and financial hell that Japan experienced in the 1990s.

“In the immediate future, the concern must be one of deflationary influences. People continue to conserve cash. They see today’s car as cheap, but they see tomorrow’s car as cheaper, so they hold off,” he says.

“Further out, I have little doubt in my own mind this massive amount of pump priming and printing press and putting money back into the economy will prove inflationary. Six years from now we will be looking at much higher rates of inflation and the debate about deflation will be long gone, because it hasn’t got the same demographic drivers in the west as in Japan.”

Longer term, he concludes, the outlook for UK equities is brighter than it might initially appear.

“From the retail point of view, the private investor was pursuing the market very aggressively in the late 1980s. But since then, even during the tech boom, retail investors haven’t been punting the UK market in the way they had at previous times. They have in other parts of the world, in emerging economies. Low interest rates have also encouraged them to look at bonds. But they’ve been much more cautious in UK equities. Investors came back and looked at discernible cash flows because they had been fooled by the illusory values of TMT,” he says.

“We shouldn’t be deeply fearful of investors thinking now is the time to get out of the market. There is a considerable scope for upside for equities over the next couple of years. We don’t have as many flaky companies as we’ve had at the most speculative times.”

And as Jupiter Asset Management experiences stable fund flows as a result of the crisis, Mr Nutt will be hoping clients stick in his fund long enough to enjoy the bountiful times as well as the horrendous.