Fund Review: SLI Dynamic Distribution

This article is part of
Fund Review: Multi-Asset Income

This £296.6m fund, co-managed by Jacqueline Lowe and Iain McLeod, is an Investment Adviser 100 Club 2014 and 2013 member in the Mixed Asset Income category.

Mr McLeod explains: “The fund aims to provide long-term growth from a combination of income and capital growth by investing in a range of collective investment schemes managed or operated within the Standard Life Investments (SLI) group.” In this way, the fund can get exposure to a range of assets, including equities, bonds, property and money market instruments.

The fund sits in the Investment Association Mixed Investment 20-60% Shares sector. But as Mr McLeod points out: “Absolute return differentiates the Dynamic Distribution fund from the majority of funds in the sector with its holding in the SLI Global Absolute Return Strategies fund and our Absolute Return Global Bond Strategies, which have both generated positive returns while helping to reduce overall volatility.”

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He describes the fund as “relatively concentrated”, with only 16 holdings in SLI funds, and says SLI’s “focus on change” philosophy allows him to exploit opportunities across the market. He continues: “The fund takes macroeconomic factors into consideration in that it invests across all the major asset classes, which should provide some level of protection if markets take a dip. We have observed a steady stream of fairly unique market events in recent years. Throughout this, the fund has continued to provide positive returns to investors, which can largely be attributed to the fact that the fund is not tied to a static weighting between the main asset classes.

“As a result we are able to increase or reduce our asset class holdings to exploit expectations of market growth and effectively manage risk levels for our investors.”

The manager notes there have been strong positive cash flows into the fund recently but confirms this has not significantly altered the overall asset allocation of the portfolio.

The fund is overweight UK equities and property relative to its sector at the moment, “as we feel that these asset classes are where we see the most opportunity”, Mr McLeod adds.

According to the fund’s key investor information document, it is at level four on a risk-reward scale of one to seven, with ongoing charges on the retail platform 1 accumulation clean share class at 0.82 per cent.

The managers’ approach to investing has paid off, with the fund outperforming its sector over one, three and five years, FE Analytics shows. In the five years to May 27, the fund returned 70.30 per cent, compared with the sector average of 37.40 per cent, placing it in the top quartile.

Mr McLeod notes: “Primarily, the fund has benefited from its bias to UK equity portfolios, which make up around 50 per cent of the fund.” But he also points to the strong performance of other SLI funds in the portfolio. The manager cites the fund’s largest holding, the UK Equity High Income fund, which he says has outperformed its peer group over the past year.