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Five income funds to protect you from the growing uncertainty

18 June 2014

As a number of macro risks are making themselves felt on the world economy, FE Trustnet looks at some lower risk funds paying a yield of more than 4 per cent.

By Thomas McMahon,

News Editor, FE Trustnet

The economic news from the UK might seem largely rosy but markets are flat this year and there are a number of macro-economic concerns edging back into the news agenda.

The Iraq crisis looks like threatening a regional war with serious implications for oil prices; the ECB’s rate cuts are driven by fears of inflation; and the governor of the Bank of England has warned on toppy house prices threatening the UK recovery. The possibility of an interest rate hike before the end of the year has added to the tension.

Given where valuations are, investors would be forgiven for wanting to take a little risk off the table, while maintaining an income focus as cash continues to lose money in the bank.

Here we look at the funds in the mixed investment sectors with a strong track record in terms of volatility and return, and that are yielding over 4 per cent.


Premier Multi Asset Monthly Income – 4.81%

In the IMA Mixed Investment 20%-60% Shares sector is the £115m Premier Multi Asset Monthly Income fund, which has five FE crowns and is managed by David Hambidge and team.

The fund is more aggressively positioned than most outlined here, with 37.3 per cent in equities and only 32.8 per cent in fixed interest. It has 20 per cent in property and 4.3 per cent in alternatives.

It has consistently outperformed in return terms and has a high yield of 4.85 per cent. Over three years it has made 33.03 per cent for investors against the 17.74 per cent of the sector average.

Performance of fund vs sector over 3yrs


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Source: FE Analytics


Dividends are paid out monthly, making it popular with investors who rely on income in retirement.

It has a fund of funds structure, with the largest positions being Standard Life UK Equity High Income, M&G European Loan and Schroder Income Maximiser.

Ongoing charges are steep, however, at 1.59 per cent.


FP Matterley Regular High Income – 4.14%


In the lowest-risk IMA Mixed Investment 0%-35% Shares sector sits this £61m fund which also has five FE crowns and is managed by an FE Alpha Manager Chris Evans.

FP Matterley Regular High Income yields 4.14 per cent from a portfolio made up of 63 per cent bonds, 34 per cent equities and small positions in convertibles and the money market.

It is largely made up of directly held equities and bonds, although it does have a position in the Aberforth Geared Income trust worth 1.4 per cent of the fund. In total 7 per cent of the fund is in collectives.


Evans was one of the few managers to survive 2008 relatively unscathed: his fund lost just 3.14 per cent compared to the sector average of 10.7 per cent, and was also top quartile in 2011 when the equity markets last saw a serious downturn.

Over three years the fund has done very well for one with such a cautious approach, returning 22.14 per cent against the 13.41 per cent of its peer group average.

Performance of fund vs sector over 3yrs

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Source: FE Analytics


These are top quartile figures, while the fund has also been top quartile for volatility, with one of the lowest scores in the sector. Ongoing charges are 0.86 per cent, and dividends are paid quarterly.


Ecclesiastical Higher Income – 4.17%

The £242m Ecclesiastical Higher Income fund is the only portfolio in the IMA Mixed Investment 40%-85% sector to yield over 4 per cent and score top quartile annualised returns and volatility over the past three years.

FE Alpha Manager Robin Hepworth’s fund is yielding 4.17 per cent, according to our data, and has returned 29.26 per cent over the past three years, compared to 22.13 per cent from the sector average.

Performance of fund vs sector over 3yrs

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Source: FE Analytics


It has achieved this despite having a significant position in bonds of the Coop bank, which the bank has effectively defaulted on.


The fund has a high conviction stance on Asian equities, reflecting the manager’s belief that the asset class is extremely cheap on a historical basis. Developed market equities still make up the bulk of his exposure, however. Glaxo, Shell and BP are all top-10 holdings.

Hepworth currently has only 28.98 per cent in fixed interest and a further 7.79 per cent in cash. The rest is in equities.

He has 128 holdings in total, with a focus on financials, utilities and telecoms. The fund has clean ongoing charges of 0.84 per cent.


CF Seneca Diversified Income – 5.34%

Yields on offer in the IMA Mixed Investment 20%-60% Shares sector are higher than the other two mixed investment sectors, which may explain the fact it is much more popular than its two peers.

Alan Borrows’ CF Seneca Diversified Income fund, formerly called CF Miton Distribution, has one of the best on offer at 5.34 per cent, which it achieves through investing in a mixture of equities, bonds and funds.

The top holding is the unlisted AJ Bell, while it also has 3.9 per cent in the Midas Income & Growth trust – a closed-ended headed up by Borrows.

Two high yield bond funds and the TwentyFour Dynamic Bond fund, which buys ABS, completes the top five holdings.

It has 15 per cent in alternatives and 5 per cent in property, making it a more diversified portfolio than any of the others in the sector.

It lags the average fund in the sector slightly over three years in terms of return and volatility, but the latter figure is still only 7 per cent per annum.

Performance of fund vs sector over 3yrs

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Source: FE Analytics


Ongoing charges on the fund are 1.33 per cent.


Investec Diversified Income – 4.95%

An alternative in the same sector is the £89m Investec Diversified Income fund, which has been run by John Stopford since July 2012.

It is less volatile than the Miton fund with a three year annualised figure of 4.95 per cent. Returns are marginally lower at 4.46 per cent a year compared to 4.98 per cent for Borrows’ portfolio.

This fund has 31.2 per cent in emerging markets, which makes it stand out given this asset class is out-of-favour with most fund managers at present. It has a further 22.3 per cent in Europe but is lightweight when it comes to the UK and US.

Fixed interest makes up a massive 63.7 per cent of the fund, meaning that the manager is much more bullish on the asset class than most of his peers.


Three year returns of 15.62 per cent are below average for the sector.

Performance of fund vs sector over 3yrs

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Source: FE Analytics


Ongoing charges are at 0.87 per cent.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.