In an announcement last week, Miton alerted investors that Mott, who has been running open-ended portfolios since the early 1980s, would retire as manager of the £381m Psigma Income fund at the end of the year.
David Hambidge, who heads up the fund of funds team at Premier, has been one of his longest supporters.
He told FE Trustnet last year that though the relative performance of Psigma Income has been disappointing, Mott would always have place in his portfolios because of his focus on income growth.
However Evan-Cook, who works with Hambidge on the Premier’s multi-asset range including the Distribution and Monthly Income funds, says Mott’s retirement has prompted them to take action.“We have sold the Psigma Income fund and that is purely down to the change in manager,” Evan-Cook (pictured) said.
“While its performance hadn’t been great over the last few years, the reasons why we hold equity income funds aren’t the same as why we hold a straight UK All Companies fund.”
“Mott had a proven ability of growing his income distribution, plus he was invested in the right side of the FTSE All Share. We have been favouring FTSE 100 stocks over mid and small-caps recently.”
“There were also signs that this positioning was working for them as the performance had picked over the last three months. David has been a long term supporter of Mott, but we used his impending retirement as a chance to move on and look for other opportunities.”
Mott had been one of the darlings of the fund management industry as manager of Credit Suisse’s flagship Income funds during the 1990s and earlier 2000s.
He then launched his Psigma Income fund in April 2007, though he has struggled to replicate his strong past performance.
According to FE Analytics, the £381m fund has been a bottom quartile performer in the IMA UK Equity Income sector over that time with returns of just 15.85 per cent.
Performance of fund vs sector and index since April 2007
Source: FE Analytics
The fund has also underperformed against both the sector and index over one, three and five year periods.
Psigma Income has failed to participate in strongly rising markets.
It lost less than the sector in the crash year of 2008 and was a top quartile performer in 2011, but registered third quartile returns in 2009 and was bottom quartile in 2010, 2012 and 2014.
However, as Evan-Cook points out, the performance of the Psigma Income fund has picked up recently.
While 2013 was categorised by an increased demand for risk, which in turn meant that mid and small-caps drove the market, this year has been wholly different with larger, more defensive stocks outperforming.
The Psigma Income fund has benefited from this backdrop, thanks to its 75 per cent position in large caps. Our data shows it has been a top quartile performer in 2014 with returns of 2.43 per cent, beating the FTSE All Share in the process.
Performance of fund vs sector and index in 2014
Source: FE Analytics
While Hambidge and Evan-Cook say that an income fund’s total return is important, they are far more focused on its ability to pay-out a good and growing dividend.
This is something Mott has been successful at. Our data shows that Mott has increased his net distribution in all but one year since he launched the fund.
An investor who bought £10,000 worth of units in the fund five years ago would have earned £3,127.71 in income. The fund currently yields 4.06 per cent, which is higher than the sector average.
Eric Moore and Gervais Williams, the current co-managers, will take on full-responsibility of the portfolio when Mott retires, running it in the same style.
Hambidge, Evan-Cook and the team are already looking for alternatives to the fund, and pinpoint Michael Clark’s £247m Fidelity Enhanced Income portfolio as a long-term replacement.
“We have started looking at other options and one is the Fidelity Enhanced Income fund. We already have a small position in it, but it is the most likely replacement,” Evan-Cook said.
The fund has been headed up by Clark and David Jehan since its launch in February 2009.
Like Psigma Income, the Fidelity fund is predominantly a mega-cap portfolio and as its name suggests, the managers’ primary focus is to pay out a large dividend to their investors. This, Evan-Cook says, makes it an ideal replacement.
The fund uses call options to help enhance its yield, which currently stands at 6.33 per cent.
Insight Equity Income Booster, Schroder Income Maximiser and Premier Optimum Income also use derivatives to help prop up dividend payments.
Our data shows that if an investor had made a £10,000 investment in the Fidelity fund when it launched in February 2009, they would have since been paid £4,529.30 in dividends. This compares to just under £3,600 from popular choice Artemis Income.
However, the use of call options has its drawbacks. It means that investors miss-out in strongly rising markets because managers put a “ceiling” over the possible gains they can get from a stock.
Performance of fund vs sector and index since Feb 2009
Source: FE Analytics
This has contributed to the underperformance of the Fidelity fund in recent years, which has been a bottom quartile performer since its launch in 2009.
However, for those that prioritise income, Premier says it is a standout option. The fund has ongoing charges figure (OCF) is 1.21 per cent.
