"There’s a pattern to dividend payers [in our portfolios], but we will have a look at other themes as well," said Skerritt’s Andy Merricks.
Merricks (pictured) highlights five funds that have either been core holdings in the firm's portfolios or that have recently been added due to a strong view on a sector or region.
Two of the funds have an equity income focus, two are high-yielding fixed interest portfolios, while the last is a pure growth play on Japan.
Temple Bar IT
In the UK equity market, Merricks is stepping outside the realm of open-ended funds and instead opting for the £763.7m Temple Bar IT.
The trust, headed up by Investec’s Alastair Mundy, targets both income and capital growth to generate a total return ahead of its FTSE All Share benchmark.
"It’s a liquid, well-managed and generally outperforming portfolio. A good, solid core equity income type holding all round," Merricks said.
"Alastair Mundy is a good fund manager and we get good access to him. It’s good to get to know the managers that are running your money."
The trust has consistently outperformed its IT Growth & Income sector and the FTSE All Share index over one, three, five and 10 years.
Its strongest outperformance has come over five years, during which time the trust has more than tripled the returns of the index and beaten the sector by more than 80 percentage points, making 127.94 per cent.
Performance of trust vs sector and index over 5yrs
Source: FE Analytics
The majority of the portfolio is invested in FTSE 100 companies such as GlaxoSmithKline, HSBC and Vodafone, but it also mixes in lesser-known plays such as Signet Jewelers and FTSE 250 home improvement retailer Travis Perkins.
It is yielding 3.18 per cent.
Temple Bar is trading on a discount of 1.8 per cent and is 2 per cent geared. It has relatively low ongoing charges of just 0.51 per cent.
Invesco Perpetual Monthly Income Plus
Merricks says investors should never underestimate the importance of reinvesting their dividends, and highlights the Invesco Perpetual Monthly Income Plus fund as one of the best holdings to use for this purpose.
"Investors who have reinvested their dividends in this fund have nearly doubled their money," he said.
Benefiting from the combined expertise of star equity manager Neil Woodford and fixed income specialists Paul Causer and Paul Read, the fund has been a top-quartile performer over one, three, five and 10 years, as well as over the shorter term.
Over the last 10 years, the fund has more than doubled the returns of the IMA Sterling Strategic Bond sector, picking up 132.37 per cent while the sector has made just 57.99 per cent.
With a yield of 5.68 per cent, the fund is an attractive option for investors seeking an income from a mix of bonds and equities.
The £3.7bn fund is invested in a mix of the UK’s largest companies, such as GlaxoSmithKline and AstraZeneca, and government debt from the US, Germany and, perhaps surprisingly, Portugal.
Banks make up the largest sector weighting in the fund, at 29.7 per cent, and its bulk is invested in the UK followed by Europe.
It requires a minimum investment of £500 and has ongoing charges of 1.43 per cent.
Invesco Perpetual European High Yield
While Merricks says he sees no value in "safe haven" government bonds, he feels that there are good opportunities in the high yield space in Europe.
For exposure to this theme, he likes the Invesco Perpetual European High Yield fund, managed by Causer and Read.
The four crown-rated fund has beaten the IMA Sterling High Yield sector over one, three, five and 10 years.
Over the last decade, it has gained 128.05 per cent while the sector has made 92.34 per cent.
Performance of fund vs sector over 10yrs
Source: FE Analytics
However, the fund took a heavy hit in the market crash of 2008, shedding 34.29 per cent, compared with 25.37 per cent from the sector.
The fund is yielding 5.1 per cent, according to FE Analytics.
It requires a minimum investment of £500 and has ongoing charges of 1.48 per cent.
Schroder ISF Asian Total Return
Another strong geographical theme in the firm’s balanced portfolio is Asia, which Merricks is playing through the five crown-rated Schroder ISF Asian Total Return portfolio – another fund that targets both capital growth and income.
Merricks says a fund such as this gives investors exposure to a high growth area such as Asia, but at the same time dampens volatility through the form of a dividend.
"It’s a way of investing in Asia with the handbrake on," he said.
The fund is managed by FE Alpha Manager Robin Parbrook and King Fuei Lee.
It has $2.4bn in assets under management and has beaten the MSCI Asia Pacific ex Japan index over one and three years.
Since launch in July 2008, the fund has returned 122.56 per cent compared with 52.93 per cent from the index, according to FE Analytics.
Performance of fund vs index since launch
Source: FE Analytics
The two highest sector weightings in the portfolio are to financials and consumer products, at roughly 30 per cent each. The bulk of the portfolio is invested in the Pacific Basin, though it also has significant exposure to Australasia.
The fund requires a minimum investment of £1,000 and has ongoing charges of 1.99 per cent.
Neptune Japan Opportunities
Merricks has recently added exposure to out-of-favour Japan, picking up the Neptune Japan Opportunities fund.
Given that Japan has little in the way of a dividend culture, he says he prefers to get exposure to this area of the market through a pure growth play.
Manager Chris Taylor’s £175.1m fund has beaten both the IMA Japan sector and TOPIX index over one, five and 10 years, although it has marginally underperformed over three.
Since Taylor took over the fund in May 2005 it has made 122.96 per cent, compared with 49.37 per cent from the index and just 39.15 per cent from the sector.
However, the fund has been extremely volatile over that period and has no predictable record in rising or falling markets.
In the falling market of 2008 it made an astonishing 84.26 per cent, but in the next down year – 2011 – it lost 21.57 per cent.
It is clearly not for the faint-hearted, but Merricks is tipping it as a good way to play the weakening yen.
The fund requires a minimum investment of £1,000 and has ongoing charges of 1.72 per cent.
