The head of research at Hargreaves Lansdown acknowledges the £657m portfolio is not the raciest fund on the market, but he says any investor would be satisfied with its target return at the moment.
Dampier is putting all of his ISA allowance this year into Hargreaves Lansdown shares, but in his self-invested personal pension portfolio (SIPP) he has upped his exposure to Eric Holt’s vehicle.
"Seven per cent paid out four times a year is not something to turn your nose up at," he pointed out.
"It’s up around 20 per cent this year, which is far more than the market, and at a guess it’s done this with less volatility."
"Yield is tax-free in a SIPP, so this is the perfect example of a fund for the opportunist. I got £2,000 in dividends in the last payout. I’ve held it since the 2009 rebound, but added to it over the last couple of months."
"I recommended it to a client three months ago, but they were having none of it. It’s up a hell of a lot since then," he added.
According to FE data, Royal London Sterling Extra High Yield – or "SEXY", as it is referred to by some quarters of the industry, is up 19.71 per cent year-to-date, compared with 11.27 per cent from its FTSE All Share benchmark.
It has also significantly outperformed its IMA Sterling Strategic Bond sector, with a similar degree of volatility.
Performance of fund vs sector and index in 2012
Source: FE Analytics
Dampier continued: "This fund had a torrid time back in 2008. Anyone who thinks that bonds are safe might want to take a look at its performance a few years ago. It was as low as 40p, and now it’s back up to 104p."
"After 2008, it was incredibly good value because bonds were so ludicrously priced. There’s clearly not as much upside in bonds now as there was then, but when a fund like this is yielding 7 per cent, I still think there’s value."
According to FE data, the fund was down more than 33 per cent in 2008 – marginally more than the FTSE All Share. Over five years it has returned 24.85 per cent, which is around 6 percentage points less than its sector.
Performance of fund vs sector and index over 5-yrs
Source: FE Analytics
Dampier says the portfolio has less interest rate risk than a lot of bond funds.
"Interest rates don’t look like they’re going up for a long time, but even if they do, this is a fund that’s more sensitive to credit than rates," he explained.
"As long as there is some growth, I think the manager will be pretty comfortable paying out at this [7 per cent] level."
Royal London Sterling Extra High Yield requires a minimum investment of £1,000 and has a total expense ratio (TER) of 1.39 per cent. It has five FE crowns – the maximum number. Holt has headed up the fund since April 2003.
Around half of the portfolio is invested in sub BB-rated paper, which is defined as non-investment grade. A further 33.6 per cent is in unrated bonds, which Dampier says allows the manager to identify secure bonds at “ridiculous” prices.
A position in Thistle Hotels is the manager’s biggest single holding.
Eighty per cent of the fund's assets are invested in the UK, with the rest split between the US and Europe.
Financials is its biggest sector position at present. Options in Investec Bank, Yorkshire Building Society and Phoenix Life are all top-10 holdings.