Fund Review: F&C MM Navigator Distribution fund

The £723.8m F&C MM Navigator Distribution fund, managed by star duo Gary Potter and Rob Burdett, has eclipsed its IMA Mixed Investment 20-60% Shares sector five-year average return.

In five years to August 15, the fund – at 43.73 per cent – has almost doubled the sector’s average return of just 29.14 per cent and, as a result, has been catapulted into the Investment Adviser 100 Club 2013. Launched in October 2007, Mr Potter, co-head of multi-manager at F&C, says the aim was always to provide a level of income that would allow clients to maintain their buying power over the longer term and to beat inflation. He explains: “The concept of the fund was really to recognise that the world was changing and that interest rates, because of the crunch, would have to come down and stay low for a very long time and people would no longer be able to get an inflation beating income level, or at least maintain the buying power of capital, by putting [money] in the bank.”

In addition, he points out there was also a case to change how people achieve income, away from the traditional distribution funds of investing in bonds, property, equities and cash.

Article continues after advert

He says: “We were finding interesting, different sources of income. There were things in the marketplace that were producing uncorrelated income, different types of income that was perhaps not necessarily completely conventional. So we embarked on building the portfolio from there really to produce a sustainable and high relative level of income, and the objective of the fund was always to maintain a top-decile yield in, what was the IMA Cautious Managed sector, and is now the IMA Mixed Investment 20-60% Shares sector.”

The fund is run along the same process as the team’s other eight multi-manager portfolios, with Mr Potter noting the key to the selection process is “finding things that make sense to us”.

He adds: “We don’t buy things just because it is producing a yield and we think it is alright. It has to be supported by extremely strong investment management capability and expertise in sectors and fields. There are centres of excellence in every part of this portfolio but it has to be people-led. It is inconceivable we would buy a structured product for this portfolio that was based on an algorithmic basis – there has to be expertise behind it.”

For the Distribution fund in particular, he notes the selection process is focused on whether the addition of, say a particular new position, brings something different to the portfolio construction mix. He explains: “Does it add non-correlated diverse income streams to this portfolio. For this particular fund it has to bring diversified sources of income.”

The duo also meet the managers and score them on their system and undertake qualitative and quantitative research, although Mr Potter notes roughly 75 per cent of the research is qualitative, rather than relying on “looking through the rear view mirror”.