Best In Class  

Best in Class: LF Seneca Diversified Income

Best in Class: LF Seneca Diversified Income

Interest rates in the UK have been 1 per cent or less for a decade now.

That is 10 very miserable years for savers looking for an income. 

While many had hoped interest rates would rise further this year, the warning last week from the Bank of England – that we face a one in four chance of recession, even if Brexit actually goes ok – seems to suggest this may no longer be the case. 

Couple this with the US central bank pausing its own monetary tightening and the hope for higher yields on cash or government bonds seems to have been dashed once again.

This leaves income-seeking investors once more looking at riskier asset classes as a solution – just at a time when the 10-year bull market also seems to be taking a breather.

So what to suggest? The holy grail of a high level of income with low volatility is a pipe dream, isn’t it?

Maybe not.

Our best in class this week focuses on a little-known, multi-asset income fund, which has had something of a makeover in recent years. 

The LF Seneca Diversified Income fund was launched in 2002 but was given a new investment process when Peter Elston joined Seneca as chief investment officer in 2014.

The managers – a team of five – now have a value-focused style, with the flexibility to invest across all asset classes, including private equity, specialist finance, infrastructure and property, in both third-party funds and direct securities.

As the managers believe in keeping it simple, they do not invest in opaque financial products like hedge funds, structured products or derivatives.

The team’s in-house proprietary research process (known as ‘Mavi’, which stands for multi-asset value investing) focuses on identifying investments that exhibit value and quality characteristics. 

Richard Parfect, who founded Seneca in 2002, is responsible for specialist assets; Mark Wright, is responsible for UK equity research; while Tom Delic and Gary Moglione have responsibility for emerging markets, overseas equities and fixed income research. Mr Elston is responsible for the overall asset allocation. 

Getting stock selection and asset allocation right – both tactical and strategic – is one of the main challenges associated with this type of fund.

But in the past four years or so since the transformation, that is exactly what the team have achieved.

Save for the regulatory requirements, this is a go-anywhere portfolio without any constraints. And go anywhere they do: the fund currently has less than £120m of assets, according to the fund fact sheet dated December 31 2018, so it is small and nimble enough to take advantage of some excellent opportunities.

For example, having already been a shareholder in AJ Bell, before its float at the end of last year, the managers enjoyed the benefits of the platform’s successful IPO: the initial share price of 160p has subsequently rallied to 275p, as at February 12 2019. Seneca is subject to a 180-day lock-in but, so far, so good.