Evenlode Income, Veritas Global Focus and Henderson Fixed Interest Monthly Income are among the top-rated genuinely active funds that can meet investor expectations, according to Square Mile, the investment consulting and research firm. 
The fund management industry has certainly come under intense scrutiny over recent times, especially with a greater focus on potential closet trackers and the general shaming of companies offering investment vehicles that do not deliver the outcomes to investors that their marketing literature promises.
As such, Victoria Hasler – head of research head of research at Square Mile – says she and the team put great emphasis on a fund’s ability to meet its stated objectives as well as providing genuine active management when building the firm’s ‘Academy of funds’.
“When considering a fund, we put the interests of the end investor at the centre of our research. It is essential that the investment journey that they expect – whether that’s to accumulate wealth or preserve it; provide income or protect against inflation – is the journey they believed they were buying into,” Hasler said.
“Those funds which do not deliver what they purport to deliver and charge heavily in the process do the investment industry a great disservice. It is without doubt that we need to take greater responsibility for our financial future and collective investment vehicles should play a central part in helping us meet our investment objectives.”
She added: “The guiding principle of our research is to highlight those funds which help investors meet those objectives.”
Therefore, in this article, Hasler highlights four funds that Square Mile rates highly that it believes investors can depend upon.
First up is the five crown-rated Evenlode Income fund, which is co-run by Hugh Yarrow and Ben Peters and is turning into one of the darlings of the IA UK Equity Income sector due to its stellar risk-adjusted returns since launch in October 2009.
“[Evenlode Income’s] rather simple objective is to generate mid to high single-digit returns over the long term which includes increasing its dividend distributions by at least the rate of inflation,” Hasler said.
“In order to achieve its aims, the managers operate to a strict set of criteria and analysis resulting in a final portfolio that can and does look markedly different form the UK market.”
Yarrow and Peters are renowned for focusing on high quality companies with low leverage and reliable earnings – a strategy that has worked well over recent years.
Indeed, thanks the managers’ positioning, the £376m Evenlode Income fund has been a top decile performer in the sector and nearly doubled the returns of the FTSE All Share since inception with gains of 113.95 per cent.
The fund has made money in every year since launch and outperformed in all but one of them, meaning it is among the sector’s top quartile for maximum drawdown, annualised volatility and Sharpe ratio.
Evenlode Income’s dividend history
Source: FE Analytics *figures based on a £10,000 investment in January 2010
Though it has one of the lowest yields in the sector at 3.6 per cent due to its recent strong returns, as the graph below shows, it has increased its dividend in every year since launch.
Yarrow and Peters’ largest sector bet is to consumer products, with Unilever, Diageo, Procter & Gamble and Johnson & Johnson all featuring in their top 10 holdings. Its clean ongoing charges figure (OCF) is 0.85 per cent.
Sticking with equities and Hasler rates Veritas Global Focus for those who want more broad exposure.
“The Veritas Global Focus fund is a global equity strategy with a difference. The investment team focuses their efforts on providing clients with decent returns and they have no immediate concerns about matching those of the wider market or about replicating exposures found in the benchmark,” Hasler said.
“In essence, the fund is invested for absolute returns and over rolling five-year time periods. The fund aims to achieve returns of global inflation plus 6 per cent per annum and to exceed the returns of the MSCI World Index.”
The five crown-rated Veritas Global Focus fund is co-headed by the FE Alpha Manager duo of Charles Richardson and Andy Headley.
Richardson and Headley are very much value-orientated and will build up cash levels when they feel there are a lack of opportunities in the market, preferring to keep their powder dry in the event of market correction.
This process has worked well over the long, medium and short term as Veritas Global Focus – which weighs in at $3.8bn – is a top quartile performer and beating its benchmark over one, three, five and 10-year periods.
Performance of fund versus sector and index
Source: FE Analytics
It has also outperformed in seven of the last 10 calendar years and made a positive return in nine of them, the exception being 2008’s crash when it lost 7.14 per cent – though that compares to a 24.32 per cent loss from the average member of the IA Global sector.
As such, it is one of the sector’s best performers for capital preservation as well. The fund has 28.5 per cent in healthcare, 17.2 per cent in tech and 16.9 per cent in industrials. Its OCF is 1 per cent.
Henderson Fixed Interest Monthly Income
Turning to bonds now, and Hasler and Square Mile are big fans of John Pattullo and FE Alpha Manager Jenna Barnard’s five crown-rated Henderson Fixed Interest Monthly Income fund.
“The Henderson Fixed Interest Monthly Income fund invests across bond markets, with no reference whatsoever to any benchmark.”
“The managers know how important a reliable income stream is for their clients and the focus of the fund is very much on meeting their investors’ income expectations. They target an income yield of about 6 per cent, with income paid monthly and smoothed so that payments throughout the year are roughly equal.”
“This focus on income is an attractive feature for investors who need a degree of confidence in the level and frequency of income payments.”
Barnard and Pattullo, as well as James Gledhill, have run the portfolio since April 2010 and over that time the £704m fund – which currently yields 5.2 per cent – has outperformed the IA Sterling Strategic Bond sector with gains of 34.61 per cent.
Performance of fund versus sector since April 2010
Source: FE Analytics
The fund has outperformed in three of the last five calendar years, one of those being 2015 when it gained 2.5 per cent compared to a loss from the sector average.
The managers hold 42.1 per cent in investment grade credit, 39.8 per cent high yield bonds and 7.7 per cent in government bonds with the rest of the portfolio is spilt across loans, preference shares and asset-backed securities.
It has an OCF of 0.69 per cent.
Premier Multi Asset Distribution
The final fund is a great option for investors who want to outsource their asset allocation decision to investment professionals and find a growing income stream to boot, according to Hasler.
“The Premier Multi Asset Distribution fund aims to deliver an attractive and rising income, together with some capital growth, over the longer term. The managers employ a multi-asset, fund of funds approach and will invest across a broad range of asset classes.”
“The fund sits in the IA Mixed Investment 20-60% Shares sector, however the manager invests in a fairly unconstrained manner and focuses on selecting the most appropriate mix of assets that aims to grow the level of income as well as being mindful of providing capital growth.”
Another five crown-rated offering, the £871m Premier Multi Asset Distribution fund – which is headed up by David Hambidge, Ian Rees, Simon Evan-Cook and David Thornton – invests across other mutual funds.
According to FE data, it is outperforming its sector average over one, three, five and 10 years – with its best relative performance coming over five years as it ranks fourth in the sector.
Performance of fund versus sector over 5yrs
Source: FE Analytics
It has also been one of the peer group’s best income generators over that period, paying out £2.534 on £10,000 over that period. It has increased its dividend in each of those years and has also protected capital far better than most of its rivals, sitting in the top quartile for maximum drawdown and Sharpe ratio over the past half a decade.
The managers hold 49.5 per cent in equities, 31.8 per cent in bonds and 8.8 per cent in property. Top 10 holdings within Premier Multi Asset Distribution – which yields 4.17 per cent and has an OCF of 1.42 per cent – include Standard Life UK Equity High Income, TwentyFour Dynamic Bond and Threadneedle UK Property.