Introduction
There is currently no specific IMA sector for distribution funds but a search of FE Analytics offers up 21 funds with ‘distribution’ in the title. They are either in one of the IMA Mixed Investment sectors or are categorised as Unclassified.
Of these funds, 11 have a 10-year track record, including the Axa Distribution, Henderson Multi-Manager Distribution and Aberdeen Managed Distribution funds. In the 10 years to August 27, these funds have delivered a respectable average return of 75.36 per cent.
Among the newest distribution funds are the Artemis Monthly Distribution, FP Tatton Oak Distribution and the PFS Hawksmoor Distribution funds, which have built up a one-year track record respectively, while the Invesco Perpetual Global Distribution fund has only clocked up three months of returns.
Axa Investment Managers has the biggest range of distribution funds at four.
According to Fidelity, the IMA Mixed Investment 20-60% Shares sector remained the best-selling sector on its FundsNetwork platform in July this year, with “significant” flows into the sector. Notably, the Invesco Perpetual Distribution fund topped the FundsNetwork Isa sales table in the same month.
Klare Baldwin, head of marketing at FundsNetwork, says: “Multi-asset solutions have once again demonstrated their dominance in the sales charts.
“With demand being so resolute for mixed-investment solutions and the diversification benefits they bring, it seems that investor sentiment remains somewhat cautious following an extended bull run in the markets.”
Jim Stride, manager of the Axa Global Distribution fund, explains: “Distribution funds are targeted at the relatively cautious, not totally risk-averse investor and they have been designed to give a much smoother, less volatile ride.”
He suggests that over the long term these types of funds will provide a “satisfactory” return when compared to the returns investors can expect from cash deposits.
Although the range of open-ended distribution funds currently available to investors is fairly small, the changes to pensions on the horizon could spur growth in the market.
Mr Stride agrees: “I think the more cautious-approach market is actually a growing one and I suspect it will grow quite rapidly once the changes to the annuity provisions come into effect next year.”
The pension reforms mean those at retirement age will not be obliged to take out an annuity, so the onus will be on other ways to find income in retirement.
He notes: “I think this is a great place to be, both in the longer term in terms of accumulation of a retirement pot and actually the at-retirement pot as well. Distribution funds are very well positioned for the long run.”
So it would seem the popularity of distribution funds is on the increase, which indicates there could be more fund launches in this sector in the future.
Ellie Duncan is deputy features editor at Investment Adviser
The picks
Jupiter Distribution
This £463m fund aims to provide a sustainable income and the prospect of capital growth through investing mainly in UK equities and fixed interest securities. According to the fund factsheet, the portfolio is split roughly 70 per cent to 30 per cent between bonds and equities. It sits in the IMA Mixed Investment 0-35% Shares sector and has achieved top-quartile returns across one, three, five and 10 years. FE Analytics shows that over 10 years to August 27 the fund has returned 68.26 per cent, against a sector average of 51.38 per cent.
Artemis Monthly Distribution
This fund is a modest £31m in size, having only launched in May 2012. But with co-managers Jacob de Tusch-Lec and James Foster behind it, this could be one for investors with a long-term horizon. The managers aim to achieve an income in addition to capital growth through a combination of global equities, bonds and cash. The portfolio currently has 41.7 per cent in non investment-grade bonds, 40.3 per cent in equities and 16.6 per cent in investment-grade bonds. The fund, which is in the IMA Mixed Investment 20-60% Shares sector, has returned 14.85 per cent in the year to August 27, according to FE Analytics, placing it top quartile.
Editor’s pick
Premier Multi-Asset Distribution
This fund launched back in October 1995 and has grown to £373.1m in size. Its objective is to pay a quarterly income to investors. The fund’s team takes a contrarian approach, taking profits from asset classes and funds that have performed strongly, while investing in those that have been weak. UK equities currently comprises 29.5 per cent of the portfolio and bonds account for 29.4 per cent. According to FE Analytics, the fund’s performance has been consistently top quartile, having returned 63.32 per cent in the five years to August 27. It sits in the IMA Mixed Investment 20-60% Shares sector.
