In the shorter term the fund is just ahead of the sector and benchmark for the year to date to November 12, with a return of 7.31 per cent, compared with the sector average of 5.12 per cent and the index return of 5.36 per cent.
Mr Kerley notes: “For income funds in general, everywhere around the world, the first five months was terrific as low interest rates have driven everyone towards yield. But from May it became more tricky as the US Federal Reserve started talking about tapering, and it became a bit more of a challenge.
“We haven’t really changed the portfolio, but we were getting worried towards the end of last year and into the beginning of this that some yielding areas were getting too expensive. Some equities have become overly expensive, so we’re moving the portfolio more towards dividend growth, which I think helped us in the second half of the year, but didn’t help us enough to match the index.”
The fund has a strong weighting to Australia at approximately 17 per cent of the portfolio, beaten only by China at 18.5 per cent.
Mr Kerley explains: “We’re an income fund and we have an obligation to pay a yield, so we need to catch a certain level of income that may push us towards certain countries and sectors. For example we don’t particularly like Australia but it’s the highest yielding market in the region by quite a long way. So as an income fund it’s difficult to ignore parts of Australia.
“We split the portfolio roughly 50:50 between high yield and dividend growth, when you look at it in those terms, Australia comes into the high yield type, as would telecoms, but then when looking at dividend growth China - where we have quite a high weighting relative to income peers - would come under dividend growth. It is bottom up but we are conscious of the fact we need to pay out a high yield which is an attraction of the strategy in the first place.”
EXPERT VIEW
Juliet Schooling Latter, head of research, Chelsea Financial Services:
