As part of our campaign to win greater transparency for income investors, we have turned our attention to the IMA Mixed Investment 20%-60% Shares and Mixed Investment 40%-85% Shares sectors to determine how successful they have been in putting money in their investors’ pockets.
In this study we have looked at funds in the two largest multi-asset sectors to see how much they paid out on an initial investment of £1,000 between 1 January 2007 and 31 December 2013. This covers a full market cycle, allowing us to see how well the funds have performed across a variety of conditions. Multi-assets funds have proven popular with investors who want to draw an income from their holdings, such as those in retirement. While a large proportion of the sectors’ members do not focus on income, there are a number of funds that have been successful at beating their rivals in more income-orientated sectors.
In a previous piece of research we have examined how the IMA UK Equity Income sector performed in terms of income earned over the market cycle. This showed that the average fund paid out £287.51 on an initial £1,000 over the seven calendar years in question.
Schroder Income Maximiser leads the pack with a total income payout of £480.63. The portfolio is based the Schroder Income fund, but its income is enhanced through its ability to use derivatives.
Our analysis of the two biggest multi-asset sectors shows the £3.1bn Invesco Perpetual Distribution fund has paid out the most income over the market cycle, with investors earning £410.04 on an initial investment of £1,000 on 1 January 2007.
Source: FE Analytics
Although this is below Schroder Income Maximiser, it is ahead of the £365.95 paid out by Newton Higher Income and the £340.67 from Threadneedle UK Equity Alpha Income, the next two highest payers from the UK sector.
It is also 42 per cent higher than the pay-out of the average UK equity income fund.
Invesco Perpetual Distribution comprises two sub-portfolios - one focusing on bonds and managed by Paul Read and Paul Causer (pictured), with the other investing in UK equities under the management of Ciaran Mallon, who took over from Neil Woodford in September 2013.
The five FE Crown-rated fund is first quartile in the IMA Mixed Investment 20%-60% Shares sector over one, three and five years in total return terms. Over five years, investors are up 60.47 per cent, against an average gain of 33.66 per cent in the peer group.
Performance of fund vs sector since Jan 2007
Source: FE Analytics
It also appears on the FE Research team’s Select 100 list of preferred funds and is found in Square Mile Investment Consulting and Research’s Academy of Funds, where it has an ‘AA’ rating.
Square Mile said: “Read and Causer are experienced managers who have established a strong track record managing this mixed asset mandate across a number of market cycles.”
“In our opinion, they have established a comprehensive and thoughtful process that has a strong awareness of macroeconomic factors and valuations. They are pragmatic investors who are readily prepared to orientate the portfolio towards the most attractive opportunities, whilst remaining within the bounds of the mandate.”
Invesco Perpetual Distribution has a clean ongoing charges figure (OCF) of 0.82 per cent and it currently yields 4.15 per cent.
Our research also shows FE Alpha Manager Robin Hepworth's £281.2m Ecclesiastical Higher Income fund is the second-highest payer from the two multi-asset sector’s examined over the market cycle.
It has paid out £346.77 on an initial £1,000, meaning only Schroder Income Maximiser and Newton Higher Income have paid out more from the IMA UK Equity Income sector.
Ecclesiastical Higher Income appears on the Select 100 list. The FE Research team highlight the manager’s cautious approach, which has helped the fund to outperform in both rising and falling markets while taking on less risk than its peers.
“Hepworth is a long-term investor with a cautious approach, which means he may miss out on some short-term opportunities. However, the market tends to reward this type of strategy as the manager is not prone to over-reacting to immediate news,” the team said.
Performance of fund vs sector since Jan 2007
Source: FE Analytics
In total return terms, the fund is in the IMA Mixed Investment 40%-85% Shares sector’s second quartile over one and three years and its top quartile over five years. It is in the first quartile during 2010, 2011 and 2012 but dropped in the bottom quartile in 2013. Over 2014 so far it is back in the first quartile.
Ecclesiastical Higher Income has clean ongoing charges of 0.84 per cent and yields 4.09 per cent.
In total, 10 funds from the IMA Mixed Investment 20%-60% Shares and Mixed Investment 40%-85% Shares sectors have paid out more than the average IMA UK Equity Income fund over the past seven years, as the table on page one shows.
Popular funds achieving this include FE Alpha Manager Ian Spreadbury and Michael Clark’s Fidelity Moneybuilder Balanced, Alastair Gunn’s Jupiter High Income and Henderson Cautious Managed, helmed by Chris Burvill alongside FE Alpha Manager’s John Pattullo and Jenna Barnard.
