Fund Review: F&C MM Navigator Distribution

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Fund Review: Distribution funds

This £1.1bn fund was launched in October 2007 and has been managed since inception by Gary Potter and Rob Burdett and their team.

Mr Potter notes the vehicle’s aim is to achieve the majority of its returns from the income side of the portfolio, with the target of a top-decile return in its sector in terms of income generation.

He says: “It was always our expectation that this fund would produce a relatively high, consistent income. We didn’t really appreciate how important income was going to become in 2007 as interest rates were quite high then, so we had to compete with bank deposits.”

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The manager notes that although the same investment process applies across the Navigator range of funds, the Distribution offering “was slightly distinct from our other products… and was different to what we did in the past”. He explains: “This was new for us – a fund with a particular objective to provide a relatively high income.”

The team’s process for achieving this income focuses on diversification and the power of compounding high and sustainable dividends. Mr Potter says: “We thought if we could find a collection of different types of income funds and put them together in a very sensible, diversified way, not only would we have lots of ‘air bags’ in our portfolio, we would drive a diversified income return. This has been proven to generate a consistent income return in the long term.”

But he stresses that the income does not come at the expense of capital, pointing out that the team is seeking “natural” income. “We’re trying to get as high an income as possible in the confines of a risk-controlled environment but without seeking to use capital to augment income.”

The manager adds that the fund’s natural income yield is roughly nine times higher than that for the average vehicle in the Investment Association (IA) Mixed Investment 20-60% Shares sector. He attributes this to the diversification of the portfolio, which holds 34 different positions that in total offer more than 2,000 sources of income. “We spend a lot of time looking at correlation, so we find that we don’t put it all on red and black comes in,” he says. “There is a vast array of different things that are not dependent on each other in terms of correlation. What this means is that when something’s not working properly something else is.”

The fund’s clean C-share class sits at a risk-reward level four out of seven, while ongoing charges sit at 1.47 per cent, its key investor information document shows.

The fund has almost doubled the return of its sector since launch, delivering 42.5 per cent to October 15 2015 against the IA Mixed Investment 20-60% Shares sector average return of 28.7 per cent, data from FE Analytics shows. It has also outperformed its peers across three and five years, although its 12-month return of 4.2 per cent is slightly behind the sector’s 4.9 per cent.