HL Multi-Manager Income & Growth - a look over the past year

Heather Ferguson | Mon 12 June 2017

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• Our one-stop solution for UK Equity Income exposure, combining the talents of outstanding equity income managers within a single fund
• An investment in JO Hambro UK Equity Income made the biggest positive contribution to performance over the past year
• Performance against an uncertain and volatile backdrop has been in line with peers

Market backdrop

The past year has been a period of mixed fortunes for UK stock markets and politics has had a far greater impact on stock market performance than usual. The UK’s referendum on membership to the European Union, Donald Trump’s victory in the US, and uncertainty over elections in Europe have all caused volatility in share prices.

UK share prices fell in the weeks surrounding the UK’s decision to leave the European Union, particularly those of more domestically-focussed small and medium-sized companies. Larger, internationally-exposed companies fell to a lesser extent. Investors favoured businesses with overseas operations partly due to their removal from Brexit related woes, and partly due to the positive impact weaker sterling had on the value of international earnings.

Share prices quickly recovered from these initial falls, and small, medium-sized and larger companies have all performed well since. Small and medium-sized companies have performed particularly well over the past few months as confidence in the UK economy has improved and stronger sterling has caused the flood of money to companies with overseas earnings to reverse. Meanwhile, a recovery in commodity prices, which caused the shares of related companies to perform strongly for much of the past year, has tailed off over the past few months.

Fund performance

The HL Multi-Manager Income & Growth Trust performed in line with the peer group over the past year, but underperformed the FTSE All Share Index. Mining and oil & gas companies led the charge over the majority of this period as a result of improved commodity prices. However, many of the managers represented in the fund, and indeed in the wider UK Equity Income sector, view the income paid by these companies as unreliable. The trust and its peer group therefore have a lower exposure to these businesses than the index, and so both lagged the performance of the index. Elsewhere, the trust has a relatively high exposure to higher-risk small and medium-sized companies, which held back performance relative to the index and peer group in the months surrounding Brexit, but has added value more recently.

Lee Gardhouse and Ellen Powley have a track record of successfully selecting fund managers who have gone on to outperform their peers and benchmark. As a result, the trust’s long term performance has been strong and £10,000 invested at launch is worth £21,643 today or £38,128 if income of £8,861 was reinvested. This equates to a gain of 281.3% since launch, compared with 223.1% for the average fund in the sector over the same period. Past performance should not be seen as a guide to future returns.

Past performance is not a guide to the future. Source: *Lipper IM to 31/05/2017

We are particularly proud of the trust’s track record of generating an attractive income: the income paid by the trust has risen in 12 of the 13 years since launch. We continue to believe UK equity income funds offer relatively attractive yields and have the potential to deliver excellent long-term returns although of course there are no guarantees. We believe the convenience, diversification and layers of active, expert management justify the additional cost of a multi-manager approach. The charges for this trust are taken from capital which increases the yield but reduces the potential for capital growth.

Underlying holdings of note

The JO Hambro UK Equity Income Fund made the biggest positive contribution to the portfolio’s performance over the past year. The fund experienced a tougher time in late 2015 to early 2016, and Lee Gardhouse and Ellen Powley took the opportunity to add to the position while the fund underperformed its benchmark. This strategy worked well as the trust therefore had a larger exposure to the fund when performance improved in early 2016. The managers’ strong stock selection has contributed to the fund’s strong performance, according to our analysis. The fund also has a higher exposure to commodity-related companies than many others in the trust.

While the Marlborough Multi Cap Income Fund’s performance has been dull for much of the past three years, more recent returns have been stellar. Lee Gardhouse and Ellen Powley added to this investment during this period of weaker performance and are encouraged to see their long-term conviction in the fund’s manager vindicated. The fund has been aided by the recovery in small and medium-sized companies, while the fund manager’s good stock selection has also added value over the long term, according to our analysis.

Currency effects have impacted the fund’s overseas investments. Sterling weakness in the weeks following the UK’s Brexit vote boosted returns from internationally-focused investments to the benefit of the Newton Global Income Fund. Likewise, sterling strength so far in 2017 has detracted from the fund’s returns for UK based investors.

Find out more about this fund including how to invest

Please read the key features/key investor information document in addition to the information above.

The HL Multi-Manager Funds are run by our sister company HL Fund Managers Ltd.