Marlborough Multi-Cap Income – Jam today, jam tomorrow

Kate Marshall | Fri 09 November 2018

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• Siddarth Chand Lall has maintained a good level of diversification in the portfolio
• He’s confident about future dividend growth
• He’s invested in some opportunities he thinks others have missed

Our view

The Marlborough Multi Cap Income Fund offers something a little different to most income funds.

It mainly invests in small and medium-sized companies, instead of the larger firms that most income funds target. They aren’t often known for paying high dividends, but many do.

They also offer greater growth potential because they’re at an earlier stage of their development. And as they grow into successful businesses, the cash they generate and dividends they pay have the chance to grow too. Being at an earlier stage of their growth path makes them higher-risk though.

The fund is run by Siddarth Chand Lall, who also has the help of Marlborough’s UK smaller companies team. We think their focus on smaller businesses means this fund could help diversify an income portfolio that’s mainly invested in larger companies. The fund currently features on the Wealth 150+ list of our favourite funds.

Grow that dividend

We like income funds that can generate a rising income over time, especially as your cost of living is likely to rise. After a recent meeting with the manager, we’re pleased to hear he’s more confident than ever that this fund will deliver dividend growth, although this isn’t guaranteed.

The current yield is 4.37%, though this is variable and not a reliable indicator of future income.

Weatherproofing

Chand Lall doesn’t want the fund to rely too much on one area.

So to make sure the fund is well diversified, he’s invested in a mix of companies that have the potential to generate profits both in the UK and abroad.

He also makes use of the fund’s ability to invest up to 20% in foreign companies. For example, he’s added chip maker Taiwan Semiconductor, Swiss healthcare giant Roche Holdings and Norwegian energy company Equinor to the fund.

He’s also making sure most of the fund is invested in companies that don’t have too much debt. He’s focused on companies in good financial health that generate lots of cash, which could help support a rising dividend.

Hit the sales

High street retailers have suffered from stiff online competition and have been out of favour with investors. But Chand Lall thinks good retailers have been tarred with the same brush as the ones that are struggling.

The fund currently invests in WH Smith. They’re a regular fixture at railway stations and airports where they have a captive audience and limited competition.

The fund also holds Next. The high-street stalwart has evolved and now does nearly half of its business online.

Performance

The fund hasn’t performed quite so well over the past year. Shares in Hill and Smith, a specialist in infrastructure and galvanising, fell when the company issued a weak trading update. The fund also invests in photo booth operator Photo-Me. Its share price dropped when it reported sales in Japan were lower than expected.

Over the longer term its rewarded investors handsomely. If you’d invested £10,000 at launch in 2011 and re-invested the dividends, your investment would have more than doubled to £20,180*.

If you’d taken the dividends, you would have received £4,504 back in income. Your remaining investment would have also increased to £14,641. Performance of the investment and the income could be better or worse in future though and you could get back less than you invest.

We still think Chand Lall and the Marlborough team will do a good job for investors over the long term.

Please note charges can be taken from capital which can increase the yield but reduces the potential for capital growth.

Past performance is not a guide to the future. Figures shown with income reinvested. Source: *Lipper IM to 31/10/2018

Please read the Key Features/ Key Investor Information in addition to the information above.

Find out more about this fund including charges