THE jump in RBS shares following the bank's latest results was a reminder that chasing income from dividends is not the only strategy that private investors can adopt.

Investors poured £1.4billion into UK equity income funds in June, more than the total £1.25bn for the previous five months, as star manager Neil Woodford attracted a big following for his new CF Woodford Equity Income Fund.

Meanwhile, only 17 per cent of investment managers now hold RBS shares, compared with 55 per cent at the end of 2006 when RBS made up 3.36 per cent of the all-share index - ten times its present weighting, according to an analysis by Hargreaves Lansdown. The absence of a dividend since 2008 has driven out conventional funds - but recovery funds have moved in.

Laith Khalaf, senior analyst at Hargreaves Lansdown, says: "Before the financial crisis it would have been a sizeable active decision to omit RBS from a UK portfolio, but now the bank is the sort of unloved stock preferred by contrarian managers searching for recovery plays. These types of fund can make strong returns for investors, as evidenced by the rise in the RBS share price. However they can require patience, and do tend to be more volatile because the stocks they invest in naturally have an element of uncertainty, and have to overcome negative market sentiment."

The funds with the biggest exposure to RBS include Schroder Recovery (4.3per cent) , Jupiter Undervalued Assets (3.5 per cent), UK Growth (3.4 per cent), Investec Special Situations (three per cent) and Schroder Income (three per cent).

Nick Kirrage, fund manager at Schroders, says: "Bad headlines can sometimes produce good opportunities, and nowhere have headlines been worse than banking. However, after several years of de-risking and simplifying, today's low bank valuations represent an attractive opportunity, particularly for income investors, as business profits improve and dividends re-emerge."

Alistair Mundy at Investec adds: "As the RBS clean-up continues, we think the prospects for the core businesses to grow and be better appreciated could drive the share price further."

Graham Spooner, investment research analyst at The Share Centre, says: "Investors who have held onto the banks hoping for a recovery have seen some reward over the last two years. However, we have long warned there is no quick fix for the sector."

Mr Spooner said the number of investors holding RBS over the past two years had fallen by almost 30 per cent, as short-term profits were taken, while Lloyds investors were down by 12 per cent and Barclays holders down nine per cent.

Meanwhile the most popular fund bought last month by Hargreaves Lansdown customers was the Woodford fund, and its top 10 included Marlborough Multi Cap Income, Artemis Income, Royal London Sterling Extra Yield Bond, Invesco Perpetual High Income (Mr Woodford's old fund), Threadneedle UK Equity Income, and Newton Global Higher Income. Odd funds out were Marlborough UK Micro Cap Growth, and Standard Life UK Smaller Companies, managed in Edinburgh by the highly-regarded Harry Nimmo. That fund did, however, have the indignity of appearing last month in Bestinvest's regular 'Spot the Dog' survey of underperforming funds over three years.

The survey's UK 'dog' funds, which must have underperformed their benchmark by 10per cent or more over the three-year period, include several big-name recovery funds - SWIP UK Opportunities, Halifax Special Situations, Standard Life UK Opportunities, Marlborough UK Primary Opportunities, and the giant M & G Recovery. However Liontrust Special Situations is among the 'best in breed' UK funds, as is Marlborough Special Situations and the small company funds from Liontrust, Marlborough (including the microcap fund) and Old Mutual.

Discount brokers Willis Owen's top selling funds in June included Threadneedle High Yield Bond, Jupiter Merlin Balanced Portfolio and Royal London Corporate Bond .

Customers of The Share Centre had a broad taste, its top-selling fund being a tracker fund, SWIP Foundation Growth which tracks the all-share index, followed by Jupiter Global Managed and Legal & General UK Index. Also in the top 10 were Invesco Perpetual UK Growth, Newton Asian Income, and Aberdeen Emerging Markets, flagship fund at Aberdeen which this week had to reassure investors after a fund outflow.

Sanlam Private Investments, publisher of the long-established White List of best-regarded income funds, says Rathbone Income managed by Carl Stick, long one of the sector's strongest performers, has returned to the list. Aviva Investors UK Equity Income and Troy Trojan Income are relegated to the Grey List but investors are advised "not to panic" as the setback is viewed as temporary. Paul Surguy at Sanlam concludes: "With over £7billion of investors' money in the Black List, it does concern us that investors will endure extended periods of underperformance." He says Scottish Widows, recently absorbed into Aberdeen Asset Management, remained "rooted to the bottom of the list".

The White List is available from Sanlam on 01225 460010. Spot the Dog is at or from 020 7189 2400.