Our tortoise technique to win the race for dividends
INVESTORS who want to put their money into equities but are nervous of stormy waters ahead – the fallout from Brexit and the cut in the Bank of England base rate, for example – are increasingly steering towards multi-asset funds.
These allow money to be divided among a variety of assets from a selection of shares, bonds and cash to property and commodities, and sometimes across different countries. The idea is that when one or two of these ingredients are in the doldrums, others will hopefully be racing ahead.
The goal of such funds is to preserve capital, even if it means sacrificing returns in the short term. But some, such as Miton Cautious Monthly Income, are also designed to help those wanting a predictable income, while hopefully building up capital too.
David Jane, who has managed the fund with Anthony Rayner for five years, says: ‘We try to navigate what life throws up essentially by taking a slow, tortoise-like approach.
‘We aim to grow the fund steadily by high single or low double-digits over a period of time – a three to five-year rolling period – and to produce a steady income of more than 3.5 per cent a year. We can sleep at night knowing the capital value will not leap up or down.’
The ‘lower for longer’ rate environment we are in – meaning low growth, low interest rates and low yields on bonds and shares – has influenced the managers’ investment moves. Jane says: ‘We don’t need to beat UK equities or world indices. What people care about is protecting their money.’
Recent action to protect capital has included buying more gold (a safe haven in turbulent times) and moving investments out of Japan.
Jane says: ‘In June last year, we had 15 per cent of the fund in Japan, but have had nothing there for six months. Normally, Japan is a good balance to other equities, but the market fell out of bed.
The pair are keeping away from builders and consumer cyclicals, such as retailers and automotive stocks, due to uncertainty. But they like a particular type of UK industrial stock. Among their favourites are Renishaw, a maker of 3D printers, and Alma, which makes sensors. Rayner says: ‘We like the high-tech end of engineering in the UK. The country is unfair on itself saying that it is just about financial services and shopping – there is more to our economy than that.’
The income yield on the fund – currently about 3.5 per cent – is generated by a strong mix of bonds paying fixed yields and steady dividend-paying shares, including drugs group Glaxo and tobacco giant BAT. Jane says: ‘We don’t run an income seeking strategy as such, but these shares are helpful when you are paying out an income monthly.’
Rayner and Jane never visit the companies they are eyeing up, preferring to analyse data from afar. Rayner says: ‘We’d be partial if we visited. If we liked the managing director we might fall for the patter that the business is the best thing since sliced bread.’
Patrick Connolly of independent financial adviser Chase de Vere believes the fund should perform well if the UK suffers challenging times. He says: ‘But where it could get left behind is if stock markets perform really well. However, this would be a small price to pay for many investors whose main focus is to protect income or capital.’
Jason Hollands of broker Tilney Bestinvest says that while in recent years the fund has been an average performer in the ‘mixed investment’ sector, it has a much more diversified approach than most rivals, many of which invest solely in UK equities and bonds.
Hollands says its ‘steady Eddie approach will never set the world alight in terms of delivering stellar returns’. But he believes it should appeal to investors with a cautious disposition.