This £1.2bn multi-manager fund launched in 2007 as the global financial crisis was unfolding to meet what co-managers Gary Potter and Rob Burdett saw as the increasing need for income. The fund, which sits in the IA Mixed Investment 20-60% Shares sector, aims to generate a total return with an emphasis on income and capital growth.
Mr Potter explains: “Our primary aim was to create a consistent, dependable, relatively high-yielding income fund in a sector that matched its risk profile quite well.”
Turning to the process behind the fund, he says: “When you’re investing for income, diversifying that income across a variety of assets is vital to the product’s success because we’re great believers in the multi-manager concept, we’re great believers in diversification.”
He continues: “We wanted to offer something that was significantly different in its make-up. Typically, we hold 33 underlying funds and I think one of the under-appreciated facets of this fund is when you combine many different assets you are able to reduce market volatility impact.”
The nine-strong team running the portfolio seek “natural income” to avoid diminishing capital.
As part of the process, the team carries out sector reviews every six months. The point of the review is to discover “new ideas we might want to elevate to the full research process”, although Mr Potter points out: “We won’t invest in everything that comes our way.
“For example, we have not yet invested direct exposure in the renewables sector. We think it’s a little unclear just how dependable the cashflows are on a 20-year basis. It doesn’t mean we’ll rule it out forever. We’ve been invested in and out of infrastructure investments.”
Macroeconomic factors do influence the portfolio and the team holds a monthly macro meeting. He notes: “We have to listen to the beat of world markets in terms of fixed income and equities. Obviously it’s an income product and if interest rates are lower it means the demand for income products tends to go up. It can also affect the outlook for fixed income.”
There has not been much activity in the fund this year, but Mr Potter confirms there has been some movement in fixed income: “We changed our fixed income portfolio to accommodate one or two more positions. One of the more recent purchases was the Angel Oak Multi-Strategy Income fund. I think it’s a very interesting strategy with a decent yield and a very capable team.”
The fund is firmly in the middle of the risk-reward spectrum at level four, while ongoing charges of 1.47 per cent apply to the ‘clean’ C income share class, according to the key investor information document.
The fund has outperformed its peer group, the IA Mixed Investment 20-60% Shares sector across one, three and five years to September 14 2016, according to FE Analytics. In the five years to September 14, the fund returned 47.8 per cent, compared to the sector average of 36.5 per cent. Over the past 12 months to the same date, the fund generated a return of 9.6 per cent, in line with the sector’s 9.2 per cent average return.
Among the holdings Mr Potter believes have helped performance is the Chelverton Equity Income fund, which he notes has “been a consistent performer and delivered a strong yield”.
He also refers to the little-known Hamlin High Dividend US Equity fund, which the team invested in at launch and which is yielding around 4.5 per cent.
There have been headwinds though, one of which has been the portfolio’s fixed income exposure. He explains: “Our relatively shorter duration stance in the fixed income sector has not worked as well this year. We’ve got 31 per cent across 12 different fixed income investments. That has been a slight headwind for us.”
Responding to the outcome of the referendum, Mr Potter explains: “We just let our portfolio sail through choppy waters because we know the income will deliver, although we did reduce our UK exposure a little bit ahead of Brexit.”
But he admits: “Internationally, the UK has been a relative underperformer. We have, in some cases, a bias to value in our UK equity selection and that’s also been a slight headwind.”
