One of the more established multi-asset income funds, the £604.9m Premier Distribution fund launched in 1995 and manager David Hambidge says it aims to deliver an “attractive level of income for investors, paid quarterly”.
A member of the Investment Adviser 100 Club 2014, its primary focus is on growing income over time to help offset the effects of inflation. “The fund also seeks to generate long-term capital growth,” the manager adds.
The fund, managed by Mr Hambidge since launch, is primarily intended for investors with a long-term income need. It invests in a diversified portfolio of funds and other investments, spreading risk through exposure to a wide range of assets and markets. Mr Hambidge adds: “Our investment style is a blend of bottom-up and top-down decision-making, detailed research and analysis to pick the different investments that make up the overall portfolio and top-down decisions based on macro factors to move in and out of these investments.
“The team’s style could also be described as contrarian, as one of their main methods of adding value is to take profits from investments that have performed strongly, reallocating the proceeds to investment areas that have been underperforming.”
Team members start with a top-down analysis to assess macroeconomic conditions. This enables them to set the fund’s target investment positions and consider valuations within different asset classes. But Mr Hambidge notes: “While macroeconomic valuations are important, we do not expect to make big, sudden shifts in the asset allocation of the fund, based on any changes to our macro view. We prefer to make gradual changes to asset allocation.”
The fund’s A income sterling share class has a risk-reward level of four out of seven, according to its key investor information document, while ongoing charges sit at 2.18 per cent.
Since its launch on October 31 1995, the fund has delivered 224.57 per cent to May 27 2015, compared with the IA Mixed Investment 20-60% Shares sector average of 187.01 per cent, according to data from FE Analytics. It has outperformed its sector across one, three, five and 10 years. Mr Hambidge attributes this to several factors, including a focus on valuation and avoiding what the team sees as “expensive and crowded asset classes”.
But he adds: “Moving to an overweight position in UK commercial property a couple of years ago has certainly helped returns, while hedging the currency on our European and Japanese equity positions has also helped. Our bond portfolio has also performed well over the last few years, which is particularly pleasing given that the sensitivity to interest movements remains relatively low. There have also been a number of excellent performing holdings, with Picton Property Income and Prusik Asian Equity Income worthy of a mention.”
Recent changes include trimming the equity position during the first quarter through taking profits in both Europe and Japan. At the same time, the team increased the fund’s weighting to US high yield bonds while reducing exposure to investment grade, which “enjoyed a strong start to the year and has subsequently suffered a correction”. The manager adds: “We have also taken some profits from UK commercial property, although we remain overweight to this asset class while maintaining an underweight position in both equities and bonds.”
Mr Hambidge says the biggest drag on performance in the past few years “has probably been our avoidance of US equities, although this has helped so far in 2015”.
He adds: “In terms of the underlying holdings, all have contributed to performance in some shape or form, although on a short-term basis there will always be laggards and this is to be expected from a diversified portfolio. During the first quarter, most of the fund’s detractors were in the alternative bond space, although returns have improved over the last few weeks.
“While quantitative easing has resulted in good returns for investors, we feel that at least some of those returns have been borrowed from the future. However, we are still living in a period of low interest rates and the fact that this is likely to remain the case for a long time to come should be supportive of asset prices.”
EXPERT VIEW
Ken Rayner, director, Rayner Spencer Mills Research
David Hambidge and the team have a truly multi-asset-based process providing a useful and diversified approach to those investors with broadly traditional portfolios. The team had a difficult financial crisis, but learnt valuable lessons that have since been employed in running the fund. The management sees itself as reasonably contrarian, taking profits and redistributing it to areas that have been weak but with potential. Macro analysis determines the investment areas of merit but the key to the generation of excess returns is the bottom-up selection of funds.
