The last decade has been a challenging one for income investors, especially those who prefer not to take too much risk with their money.
Interest rates on cash savings have been at all-time lows – even zero in some cases – and few have managed to keep pace with inflation.
Meanwhile, the yields on bonds have fallen, as have those on property funds.
So as these more traditional sources of income have dried up, alternatives have been sought and investors have been pushed further and further up the risk spectrum.
Choosing which asset class to invest in and when is time consuming and hard enough without having to then try and regulate any income payments generated.
The answer, for some investors, could be a multi-asset fund. As the name suggests, this type of fund invests in lots of different types of asset classes. From equities to bonds, cash to property, infrastructure to renewable energy, multi-asset funds cover the lot. And the fund manager makes the asset allocation decisions for you, adjusting the portfolio in response to changing market conditions.
Another advantage of multi-asset funds is that, as the fund manager is an institutional investor, they often have access to investments currently out of bounds for retail investors. This mean that they can seek out some hidden gems.
This diversification can help not only lower risk, but also make the income payments from the fund less volatile than may be the case with a fund investing in a single asset class. Some also pay out on a monthly basis, which can be useful for investors relying on the income to pay bills.
And when it comes income investing in such a challenging environment, it means that they can mix and match 'natural' income, with growing and higher yields and make tactical, shorter-term decisions as well as longer-term plays.
While these funds can rise and fall in value and the income payments are not fixed or guaranteed, as a one-stop shop, they could be an interesting option for many.
The managers of this fund have a common sense investment process that focuses on value investing and income generation. They aim to produce a high level of regular income, with the prospect of preserving the real value of capital in the long term. Value investing in general tends to result in managers buying out-of-favour investments and they then have to bide their time in order for the investment to pay off. This could be quite a lengthy process, but hopefully a rewarding one.
The word 'Episode' in the name of this fund refers to those periods of time when investors' emotions cause them to act irrationally. The manager uses behavioural finance to find pockets of value and invest against the herd rather than following it. This can be useful at times when the search for income has led to many investors chasing the same ideas. The fund invests directly in individual stocks and bonds (which helps keep the costs down), while property exposure is gained by investing in property funds.
This fund has been designed to produce a high and sustainable income, along with strong absolute and relative growth through robust risk management. It aims to provide equity-like returns with less volatility through a multi-asset, multi-manager, multi-structure. As manager David Hambidge says: “Diversification has been the key to our success; not only do we have numerous eggs, we also have many baskets.”
Chelsea's fund research team are the investment advisers to this fund, which aims to pay roughly the same amount of income each month^ so that investors can budget with confidence. The target is to produce an above-market income that is not only sustainable, but also consistent. The team believes that delivering a sustainable income as a bit like a jigsaw puzzle: all the pieces have to be in place for the picture to come together, so the portfolio is adjusted regularly to make the most of different market environments.*Source: FE Analytics, 31 December 2018