Mixing in a little bit of everything

Choosing diverse sources of income is a key focus for the managers of the £618.1m Thames River Distribution fund. The strategy appears to be working with its allocation of roughly 29 per cent to specialist funds helping to keep its performance steady.

Gary Potter, co-manager of the fund and co-head of the F&C Thames River Multi-Capital team alongside Rob Burdett, suggests the vehicle is one of the most diversified in the marketplace, with more than 2,400 individual sources of income as a result of owning more than 30 different funds in the portfolio.

“We have 32 different positions or funds and about 27 different investment management companies behind those funds. [The fund has enjoyed] good performance from the credit managers and the high yield managers, excellent equity income selection, but the thing that makes this fund stand out is some of the alternative assets adding to the defendability in tougher markets.”

The fund is just shy of its five-year anniversary but over three years to August 31 it has produced a discrete return of 21.86 per cent compared with an 18.56 per cent average for the IMA Mixed Investment 20-60 per cent Shares sector. Over the 12 months to August 31, it has returned a discrete performance of 9.13 per cent, significantly higher than the 6.24 per cent sector average.

Mr Potter notes the fund, which places an emphasis on income distribution, has a prospective yield of more than 6 per cent, while historically yield has been 6 per cent gross and 5.4 per cent net.

But he adds: “Since our first dividend payment date at the end of May 2008 this fund has produced nine times the income of the sector average. If you put in £50,000 we’ve produced something like £11,100 against £1,200 and something for the sector. We’ve produced nine times the income naturally, and yet that’s only with roughly 37 per cent in fixed income.”

Some of the recent success of the fund is due to equity income picks such as the Chelverton UK Equity Income, Schroder Income Maximiser and Neptune Quarterly Income funds, which the manager says have all produced top decile or top-quartile returns so far this year of roughly 10-14 per cent.

Mr Potter, however, points out the key differentiator of the fund from the average cautious vehicle, or Thames River’s more conventional, traditional cautious managed fund, has been the alternative or specialist fund areas.

He explains: “We captured some of the upside in the first quarter, but when equity markets went south in the second quarter [of 2012] things like the infrastructure assets that we own, the listed vehicles, the doctors’ surgeries, the caravan parks, the Asian real estate funds and so on – all those specialist categories held up very well.

“So in that context, we’ve broadly managed to rise with the markets and then hold because those other alternative type assets have really been quite non-correlated to riskier assets. They’ve done quite well in the rising markets but then they held their ground and have really contributed to additional performance in the portfolio.”