There has been a surge in popularity in multi asset income funds over recent times with swathes of fund groups launching portfolios into the space over the past five years or so.
Their attraction is all too clear to see as well, given years of ultra-low interest rates and quantitative easing have pushed bond yields down to very low levels and led to increasing correlations between the major asset classes.
Therefore, a fund which derives income from a variety of different asset classes makes sense.
Of course, most multi asset income managers claim they can deliver an above average level of income and generate decent income growth for long-term investors. Therefore, for FE Trustnet’s most recent study, we looked at the funds within IA Mixed Investment 0%-35% Shares, IA Mixed Investment 20%-60% Shares and IA Mixed Investment 40%-85% Shares which have done just that over the past five years.
According to FE Analytics, out of the 208 funds from those peer groups which have a long enough track record, the average portfolio paid out £1,105.97 between January 2010 and January 2015 on an initial £10,000 investment.
The highest paying peer group out of the three sectors as the IA Mixed Investment 20%-60% Shares with a total distribution of £1,378.55. The average IA Mixed Investment 0%-35% Shares fund paid out £1.246.59 while the average IA Mixed Investment 40%-85% Shares fund, with its higher equity weighting, paid out £816.10 on £10,000.
Given that information, it comes as no shock that nine out of the 10 highest income-paying funds in the study come from the old cautious managed sector.
Source: FE Analytics *figures based on a £10,000 investment made in January 2010
As the table above shows, the fund which tops the list is F&C MM Navigator Distribution which carries five FE Crowns and is headed up by the experienced duo of Gary Potter and Rob Burdett.
According to FE Analytics, investors who bought £10,000 worth of units in the fund in January 2010 would have gone on to earn £3,134.26 in income by the start of 2015 – which is some £1,755.71 more than its sector average.
Potter and Burdett launched the £1.1bn fund of funds in October 2007 over which time it has been one of the sector’s best performers from a total return point of view with its gains of 43.13 per cent.
F&C MM Navigator Distribution has beaten the sector in five out of the last seven calendar years which has helped the fund to a lower maximum drawdown than the sector. It is also top quartile for its risk adjusted-returns, as measured by its Sharpe ratio, since inception.
Performance of fund versus sector since launch
Source: FE Analytics
It currently yields 4.4 per cent and holds 32 per cent in bonds, 54.8 per cent in equities, 9 per cent in alternative assets and 9.6 per cent in cash. Potter and Burdett currently count the likes of Artemis Global Income, PFS TwentyFour Dynamic Bond and Schroder Income Maximiser as top 10 holdings.
The team at Square Mile have awarded F&C MM Navigator Distribution with an ‘AA’ rating and point out that Potter and Burdett are one of the best funds of funds teams available to investors.
“The team have excellent knowledge of the investment industry and we see them as sensible investors. We believe this is a suitable fund for investors who want a fund of funds that is managed to deliver income from a multi asset approach that invests across a broad range of asset classes,” Square Mile said.
Not only has the fund paid out the most in dividends over the past half a decade, it has come close to increasing its distribution in each of the last five years.
Investors who put £10,000 into the fund in January 2010 would have earned £600.64 that year but its distribution dropped slightly to £599 in 2011. After that, however, those investors were paid £620.67 in 2012 and £665.53 in 2013. Its dividend fell slightly again in 2014, though.
This seems to be a fairly common theme, however, with the large majority of the top 10 income payers in the three multi asset sectors having reduced their distributions over the past five years.
For example, Premier Multi-Asset Monthly Income (which paid out £2,815.96 on £10,000), JPM Multi Asset Income (which paid out £2,763.09 on £10,000) BlackRock Global Multi Asset Income (which paid out £2,625.81 on £10,000) and Consistent Practical (which paid out £2,612.82 on £10,000) have all had to reduce their pay-out in one of the last five calendar years.
Source: FE Analytics *figures based on a £10,000 investment made in January 2010
There is one exception to the rule, however, which comes in the form of the £721m Premier Multi Asset Distribution fund – which again is a fund of funds and sits in the IA Mixed Investment 20%-60% Shares sector.
FE data shows the five crown-rated fund has been the eighth highest dividend payer out of the three peer groups over the period in question, paying out £2,744.76 on £10,000. As the chart shows, however, investors who bought that amount of units in 20110 would have seen their income rise gradually from £489.61 the first year to £660.29 by 2014.
Premier Multi Asset Distribution’s dividend history
Source: FE Analytics
Simon Evan-Cook, who runs the fund along with David Hambidge, Ian Rees and David Thornton, says finding a growing source of income is key to their process. 
“All of our funds have specific outcomes they’re trying to achieve, which we think fit well with what investors actually want funds to do. These are not marketing concepts, they are outcomes that we – as the fund managers – have been instrumental in setting,” Evan-Cook (pictured) said.
“As such, every investment decision we make for each of those funds has that specific outcome at its heart. So you won’t find, for example, gold in our income funds, as it doesn’t pay an income. Simple as that.”
“The outcome we are aiming for with the Multi-Asset Distribution fund is to pay a decent level of income, and for that income to rise steadily over time.”
The fund has also performed well from other perspectives. FE data shows it has been the second best performing fund in the sector (out of a possible 104) over the past five years with returns of 49.73 per cent, having beaten its peer group average in four out of the past five calendar years.
It is also outperforming in 2015 with top quartile gains of 4.48 per cent.
While it had a slightly higher maximum drawdown than the sector over five years at 8.92 per cent, the fund – which yields 3.87 per cent – is also second percentile for its risk-adjusted returns over that time.
Performance of fund versus sector over 5yrs
Source: FE Analytics
Currently, Hambidge, Rees, Evan-Cook and Thornton hold 45.7 per cent in equities, 30 per cent in various fixed income funds, 1.5 per cent in commercial property and 7.1 per cent in more alternative income generating assets.
Some of their largest holdings include Franklin UK Equity Income, Hermes Multi Strategy Credit, Threadneedle UK Property, Charlemagne Emerging Market Dividend and VPC Specialist Lending.
Looking further down the top 20 income paying multi asset funds between 2010 and 2014 and only one other portfolio has manage to increase its distribution in each of the past five calendar years – HSBC Income Fund of Funds.
The £143m fund, which currently yields 3.85 per cent, paid out £2,340.60 on £10,000 during the period in question meaning its total dividends were some £1,000 more than its IA Mixed Investment 20%-60% sector average.
Those that made that investment would have earned £400.79 in 2010, £441.48 in 2011, £468.55 in 2012, £507.39 in 2013 and £522.40 in 2014.
