The analysis is limited to funds that generate a yield of 2.75 per cent or more by investing across a range of asset classes.
Closed-ended funds have also been included, with products from the Association of Investment Companies’ Flexible Investment sector forming part of the study.
The strongest returns over the past three and five years do, in fact, come from a closed-ended vehicle, Seneca’s Global Income & Growth Trust.
The product, which has a current dividend yield of 3.6 per cent, targets a total return of at least CPI inflation plus 6 per cent a year, after costs, over a typical investment cycle.
The vehicle invests directly in UK equities – with small and mid-caps including drinks distributor Conviviality, engineer Senior and pub company Marston’s among its biggest holdings – but uses third-party funds elsewhere. These include equity and fixed income portfolios, but also specialist vehicles such as Aberdeen Private Equity and aircraft leasing specialist Doric Nimrod Air Two.
Seneca’s team has reduced equity exposure this year, notably moving away from the US market. This asset allocation call may explain why another fund has outpaced the trust in the shorter term.
The £95m Wise Multi-Asset Income fund, run by Tony Yarrow and Vincent Ropers, has bested its rivals over the past year by delivering a return of £1,189 from a £1,000 lump sum. It also has the best returns on a 10-year time horizon.
The strategy had an 80.7 per cent weighting to equities at the end of September, compared with an allocation just shy of 60 per cent in the Seneca vehicle.
Like Seneca’s offering, the Wise Investments fund, which has an historic yield of 5.1 per cent, holds specialist assets such as aircraft leasing outfits and puts an onus on ‘value’ investing. It also has exposure to growth areas such as UK small-cap stocks.
Diversification
A variety of holdings can serve as a key selling point for these funds. Apart from the fact they have a wider universe of income-producing assets to choose from, multi-asset income strategies can be popular because in theory they offer greater diversification than single-asset products. As such, they could fare better in the event of a market downturn.
Research by provider Heartwood found that advisers who favour multi-asset offerings as a source of income do so in part because these products are believed to have the “ability to deliver a smoother journey through diversification, preserve capital when markets fall, and to manage market cycle through tactical asset allocation”.
But performance can still vary significantly, as evidenced by the Table 1 breakdown of fund returns by year.
