This investment trust takes a slightly different approach to most of its peers in the Association of Investment Companies (AIC) Global Equity Income sector.
The £59m Seneca Global Income & Growth Trust adopts a multi-asset strategy with a value approach and aims to provide “a decent income stream to investors” along with some capital returns.
The objective of the vehicle is to “outperform three-month Libor plus 3 per cent over the longer term”, with manager Alan Borrows noting the trust is currently yielding just above 4 per cent. “We’re trying to achieve [that objective], but with a lot more smoothing than perhaps can be achieved through just investing in a pure equity portfolio approach.”
Mr Borrows is part of a team of six managers who run the strategy, which invests across a wide range of assets, including UK and overseas equities, fixed interest and specialist assets. The mandate was “changed a little bit” in 2012 and at that point the team put in place “an asset structure that we think will give us a decent chance of achieving those objectives”.
There is an additional layer of tactical asset allocation on top of the core asset structure. The manager explains: “You would tend to find the strategic asset allocation won’t change very much and I think it hasn’t been varied since 2012, but the tactical asset allocation clearly can move around quite a bit.
“Beyond that we’re looking to add value in terms of our manager selection and our direct equity selection. We do invest directly in equities in the UK, predominantly with a bias towards mid-cap stocks – which was very beneficial to us last year – but we also invest in both open- and closed-ended funds to populate other major asset classes.”
The process has evolved over time, with the addition of Peter Elston in 2014 leading to the introduction of some new ideas, as well as helping to “hone what we were doing previously”, Mr Borrows says.
“One of the big changes [Mr Elston] has put in place is the research responsibilities of each member of the team. We have six managers and each of us now takes responsibility for one of the asset classes in the portfolio. [For example], I’m doing fixed interest and [Mr Elston] is responsible for the tactical asset-allocation process.” But he notes this has been a “beefing up, rather than a complete sea change of what we do”.
The multi-asset approach has helped the trust outperform its AIC Global Equity Income peer group across one, three and five years, although its 10-year performance has lagged slightly. For the five years to February 3 2016 the vehicle returned 53.7 per cent, against the sector average of 32.9 per cent, data from FE Analytics shows.
Mr Borrows notes some recent tactical asset-allocation changes have been the result of the equity sell-off at the start of 2016, with the team assigning “a little bit more money to UK equities, where we’ve been a little bit underweight”. Following feedback from the manager researching UK equities, the team was able to take a closer look at opportunities that had previously been too expensive or didn’t fit into the valuation criteria.
“The sell-off in the markets has enabled us to look at one or two new situations that were perhaps trading a little bit beyond our comfort zone previously,” he says.
Another recent addition to the portfolio in the UK equities sector has been Royal Dutch Shell, one of the few large caps where the team feels there is some value.
“We are long-term investors, [so] this is perhaps more of a special situation for us. We’ve seen the energy sector completely derate and thought there was very strong cashflow business in Royal Dutch Shell that was being undervalued by the market, so we dipped our toes into the water. It’s probably the first large-cap purchase we’ve made for a little while,” Mr Borrows adds.
EXPERT VIEW
Ryan Hughes, fund manager, Apollo Multi Asset Management
This fund is a hybrid of direct equities and third-party funds that are typically used to gain overseas equity exposure. Being a much smaller product, the managers are able to take an active approach to asset allocation, and this has proved to be very successful with some strong performance in recent years. Given it’s an investment trust structure, investors should be aware that the vehicle operates gearing, which can add volatility to returns. That said, the managers’ track record is very strong over a long period of time.
