The pensions freedoms handed to retirees by the chancellor promise greater flexibility in how people use their retirement savings and is expected to cause a swell in demand for income funds.
An expected beneficiary of this is multi-asset income funds, which offer investors exposure to a diversified portfolio of assets with the aim of producing a reliable and growing source of income.
There’s now a number of respected funds on the market specialising in this approach so in the following article we take a look at five that are catching the eyes of the analysts at FE Research and Square Mile.
Square Mile has awarded this fund, which is run by FE Alpha Manager Eugene Philalithis and the Fidelity Solutions Team, an ‘A’ rating, saying it is “a robust offering and worthy of consideration”. The consultancy says it is a good option for investors who want a regular income stream but do not want to take a significant level of risk.
FE Analytics shows the fund has paid out £1,200 on an initial investment of £10,000 made when Philalithis took over the portfolio in October 2011. Over this time, the fund has made a 32.26 per cent return; it sits in the IA Unclassified sector, so peer group comparisons are not appropriate.
Performance of fund over manager tenure
Source: FE Analytics
Alex Farlow, head of risk based solutions research at Square Mile, said: “The fund has been designed and is managed by an impressive team, which operates independently from the rest of Fidelity Worldwide Investment, but able to leverage off of the wider resources within the group.”
“Fidelity Solutions Team has specifically designed a strong framework to ensure the fund meets its objective whilst allowing manager discretion on asset allocation and investment selection. The experienced lead manager has demonstrated his ability to meet objectives whilst managing investors’ risk exposure.”
The portfolio is mainly built from Fidelity funds, with Fidelity Enhanced Income, Fidelity MoneyBuilder Income and Fidelity Extra Income being the top three holdings. It currently has 35.2 per cent in income assets, with 29.8 per cent in growth and 26.7 per cent in hybrids.
Fidelity Multi-Asset Income has a 1.40 per cent ongoing charges figure (OCF) and yields 4.2 per cent.
Jupiter Merlin Income Portfolio
This £4.2bn fund is one of the most popular members of the IA Mixed Investment 20%-60% Shares sector, thanks to a solid long-term track record – over the past 10 years, the FE Alpha Manager duo of John Chatfeild-Roberts and Algy Smith-Maxwell has returned 30 percentage points more than their average peer with an 82.90 per cent gain.
The fund is a member of the FE Select 100, on the back of its consistent outperformance of its rivals. It must be noted that the fund did go through a difficult patch recently owing to its positions in emerging markets and gold, which has impacted its numbers.
Performance of fund vs sector over 10yrs
Source: FE Analytics
As a fund of funds, Jupiter Merlin Income Portfolio has higher than usual charges, with the clean OCF currently standing at 1.54 per cent. However, the FE Research team said: “The fund is best used as a single investment solution rather than as part of a portfolio and this further justifies the high charges.”
The fund’s top holdings include the likes of CF Woodford Equity Income, Artemis Income, Royal London UK Equity Income, Jupiter Strategic Bond and M&G Global Macro Bond.
Over the past 10 years, the fund is top-quartile when it comes to metrics such as Sharpe ratio, maximum drawdown, annualised volatility and alpha generation.
Jupiter Merlin Income Portfolio has a current yield of 3 per cent.
Invesco Perpetual Distribution
This £3.4bn fund is another member of the FE Select 100 because of the strong track record of Paul Read and Paul Causer, who run its bond sub-portfolio, and Ciaran Mallon, who looks after the equities following the departure of Neil Woodford.
Since launch in January 2004, the five FE Crown-rated fund has posted a 129.79 per cent total return, which as the below graph shows is a significant outperformance of its average IA Mixed Investment 20%-60% peer. An initial investment of £10,000 at launch has paid out almost £8,000 in dividends.
Performance of fund vs sector over 10yrs
Source: FE Analytics
Read and Causer are renowned for the expertise as fixed income managers but have been reducing the portfolio’s allocation to bonds on the back of their cautious outlook on the asset class. It currently has 63 per cent in bonds with another 33.58 per cent in equities.
The FE Research team said: “The managers have a gloomy outlook for bonds and have been increasing their holdings of cash and very low-risk, low-yielding securities. This means the portfolio will probably make smaller gains than it has in the past. Most gains should come from income rather than capital growth, they say.”
Invesco Perpetual Distribution has a 0.82 per cent OCF and yields 4.39 per cent.
BlackRock Global Multi-Asset Income
This £67.3m fund is run by Justin Christofel, Michael Fredericks and Alex Shingler, It was launched in January this year and has been awarded a ‘positive prospect’ rating by Square Mile.
Farlow said: “This is a solution for investors who require a high and regular level of income, along with a moderate level of capital growth over the longer term, all within a risk-controlled framework. The fund uses the full breadth and depth of the BlackRock group resources from asset allocation to global security selection.”
“The multi-asset strategies group has been running a similar product successfully in the US since November 2011, achieving the stated objective. The scale of the business globally means that the product can be delivered almost entirely in-house, minimising costs.”
The fund has posted a 0.39 per cent loss since launch, compared with a 1.12 per cent gain from the average IA Mixed Investment 20%-60% Shares sector, although this is a very short period to look at performance and one which has seen a ramp-up in volatility.
Its portfolio is a mix of funds and individual securities, with major holdings including iShares Core £ Corporate Bond UCITS ETF, BlackRock Global Funds Asian Tiger Bond fund and AstraZeneca.
BlackRock Global Multi-Asset Income has a 0.98 per cent OCF and is yielding 3.98 per cent.
Schroder Global Multi-Asset Income
This is another recent launch and as such has been named a ‘positive prospect’ by Square Mile. The £20.9m fund is managed by Aymeric Forest and Iain Cunningham, who are supported by a specialist equity investment team and Schroders’ global fixed income team.
Farlow said: “We believe this is an attractive fund for investors who require a high level of monthly income with the potential for some capital growth over the longer term within a risk controlled framework. Mr Forest is an experienced investor, and he and Mr Cunningham benefit from the well-resourced multi asset team within Schroders.”
“Moreover, the fund leverages the wider group’s considerable resources, drawing on Schroders’ equity and fixed income managers who run sub-portfolios for the fund. The managers’ job is to take the group’s best ideas and combine them in the most appropriate fashion to meet the fund’s clearly defined objectives.”
Again, the fund has too short a history for full analysis but it has made a 2.56 per cent loss since launch in December 2014, against a 2.72 per cent gain in the IA Mixed Investment 20%-60% Shares sector.
Schroder Global Multi-Asset Income has a 0.82 per cent OCF.
