The fund invests predominantly in UK equity income investment trusts, targeting both growth and income over the medium to long-term.
As well as beating its peer group, Consistent Practical has also beaten its FTSE All Share benchmark and the average IMA UK Equity Income portfolio, presenting investors with a potential alternative to funds in this increasing popular sector.
Source: FE Analytics
Returns are particularly impressive over the last decade; FE data shows Consistent Practical is up 148.64 per cent, beating the All Share by more than 20 percentage points.
“It’s an income and growth fund, that’s currently yielding 3.2 to 3.3 per cent. It’s a proxy for the IT UK Income & Growth sector, but we do try and mix things up a little bit and do have some exposure to Far East income, for example,” explained FE Alpha Manager Sean Ashfield, who has been lead manager since 2009.
“We try and maintain and hopefully increase our level of income, though this is difficult to do in an open-ended structure as you have to pay out everything that you generate.”
Ashfield explains that the fund has traditionally been entirely UK-focused, but has recently branched out – not least because the FTSE is now so internationally focused.
“It’s a UK focused fund yes but it depends on what you class as UK. We hold the City of London IT for example which holds Shell, BP and Glaxo which are all international companies,” the manager said.
“We are conscious of that, which is why we’ve been more likely to invest in things like the Far East. We hold the Henderson Far East Income IT in this area, which has the highest yield of its kind and has a good record of increasing its dividend payout.”
Consistent Practical sits in the IMA Mixed Investment 40-85% sector, and has been at its 85 per cent equity limit in recent years.
“You could say it’s a multi-asset fund, but we don’t really look at it in that way,” Ashfield explained.
“At certain times we’ve had a hefty weighting to gilts and other bonds, but with rates so low at the moment the weighting is just 6 per cent. First and foremost it’s a fund of investment trusts, but we will hold bonds if we see opportunities.”
Ashfield says finding a UK equity income trust that is on a discount, yielding 3.5 per cent, with a proven track record is “the sweet spot.”
However, he says investment trusts’ great run, which has contributed to Consistent Practical’s own outperformance, means there are few value plays available to him at the moment.
“We’ve had a double whammy from investment trusts – they’ve done well thanks in part to their gearing, and there’s been a big tightening in the discount as well,” he said.
“I don’t think they can go much tighter though to be honest with you. We’re going to have to work a lot harder to find opportunities.”
Performance of fund and indices over 5yrs
Source: FE Analytics
“There are still a couple of discounts out there. You’ve got Edinburgh IT which is on a 2 per cent discount. Then JPM Claverhouse IT on 4 per cent, which I’m a little surprised at given how well it’s performed.”
“Perpetual Income & Growth IT, Schroder Income & Growth IT and Invesco Income Growth IT are also on slight discounts and reasonable value in my opinion, but by and large there are few and far between.”
The vast majority of investors hold only one equity income vehicle, and perhaps five at the very most. Ashfield says there are merits of holding a number in a single portfolio however, which his performance seems to justify.
“I feel comfortable holding a spread of funds and managers – thirty-five holdings isn’t a huge number, but I don’t like to have more than 5 per cent in a single fund,” he said.
“Manager risk is a big issue, with what happened to the Edinburgh IT recently a good example. We’ve actually bought more on the back of it, and it’s now up to 4 per cent of the trust, but that’s only because we rate [Mark Barnett] so highly.”
News of Neil Woodford’s departure from Invesco Perpetual in October 2013 saw the Edinburgh IT fall from a slight premium to a discount of more than 6 per cent. The trust’s value fell by around 6 per cent on the back of the news.
As well as cutting down on manager risk, Ashfield likes to blend different styles of equity income trusts, which perform differently in certain economic environments.
“If you look at that top-10 I’m very happy with the blend,” he said.
Source: FE Analytics
His largest holdings indeed combine a mix of very different managers. Ashfield holds core large cap-focused equity income trusts such as Edinburgh IT and City of London IT, as well as the small cap-focused Aberforth Geared Income IT and multi cap-focused Temple Bar IT.
Temple Bar manager Alastair Mundy is a deep value investor, giving Consistent Practical another dimension.
The fund largest holding – London & St Lawrence IT – is an unusual holding in that Ashfield happens to be lead manager of it.
Ashfield explains the trust is a legacy holding, going back some 25 years when the trust was first seeded out of the Ambrose investment trust. He says this gave the fund an opportunity to buy discounted shares in the trust, which remain a major position.
“We have been looking to bring exposure down, though has been a very good performer for us, and helps us in managing the income of the fund,” he added.
Ashfield’s emphasis on diversification appears to have paid off; FE data shows that Consistent Practical has been consistently less volatile than the All Share and the average UK Equity Income sector average, protecting better in the down year of 2011, for example. The fund did suffer slightly more than its benchmark in 2008, though.
As well as diversifying on a regional basis, Ashfield has recently added a number of specialist income-paying vehicles, including ones that focus on infrastructure, property and even mining.
The BlackRock World Mining trust is a recent addition, making up 3.36 per cent of the portfolio. It is currently yielding 4.48 per cent.
“It’s quite pleasing because two to three years ago we wouldn’t have been able to get involved. BlackRock has actively upped its game in paying a dividend, and it’s at an attractive level,” he said.
“It means I’m buying the trust at a lower price than I have been before, but this isn’t a high conviction play on the mining sector rebounding. I’m not making a statement – I just like the fact I can give the fund a bit more diversity.”
Ashfield has been on the team at Consistent for well over a decade, and director of the firm since 2005. His father Gerry Ashfield previously ran the fund.
Consistent Practical has ongoing charges of 1.1 per cent and is available across certain platforms. It has five FE crowns, and £52m assets under management.
