HL Multi-Manager Income & Growth Trust research update

Heather Ferguson | Tue 30 June 2015

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The past year has been a period of mixed fortunes for UK stock markets. While they have made some headway, the Scottish referendum, the general election, concerns over the Greek debt crisis, and an upcoming referendum on the UK's membership of the European Union, have all caused volatility.

Given the uncertain short-term backdrop Lee Gardhouse and Ellen Powley, managers of the HL Multi-Manager Income & Growth Trust, feel a blended approach should stand investors in good stead. At the trust's core are funds weighted towards large defensive companies with less economically-sensitive earnings. Defensive companies are often characterised by more stable cash flows and stronger balance sheets which can lead to more sustainable dividends. This typically includes companies within the utility, tobacco and healthcare sectors. They are often regarded as having less economically-sensitive earnings as their sales aren't dependent on the strength of the economy; people still need to eat, will continue to get sick, and will still smoke. Conversely, companies within the financial, industrial or IT sectors are considered to be more economically-sensitive and will therefore thrive when the economy is strong and struggle when it is weaker.

The CF Woodford Equity Income and Artemis Income Funds traditionally focus on defensive areas and as they tend to invest in steady businesses with attractive yields, they provide some stability to the portfolio. The CF Woodford Equity Income is a relatively new addition. The managers formerly backed the manager, Neil Woodford, during his tenure at Invesco Perpetual. When he set up his own fund management venture last June, they switched the holding into his new fund. This has proven a very profitable investment as Neil Woodford has grown his fund by 17.9% since its launch last year, more than doubling the returns of the average fund in the sector, although please remember past performance is not a guide to future returns. Investors in the HL Multi-Manager Income & Growth Trust have benefitted automatically from this change.

Past performance is not a guide to the future

Full year performance figures are unavailable for this fund before this date.

Core positions are dovetailed with exposure to managers investing in more economically-sensitive companies, including higher-risk smaller and medium-sized firms. Majedie UK Income Fund is one such fund and was a new addition to the portfolio in July 2013. The managers have a large exposure to financial companies, focusing on insurers such as Aviva, Direct Line and Admiral rather than banks and have around half the fund invested in small and medium-sized companies. Since its addition to the portfolio, the fund has risen 42.6% compared with 22.9% for the average fund in the sector. There are, however, no guarantees this will continue.

Elsewhere, the trust is also able to invest up to 20% overseas. The managers have held a position in GLG Japan CoreAlpha Fund since March 2011. They felt the region was highly undervalued as other investors failed to identify the potential effect Abenomics and quantitative easing could have on the Japanese economy. The GLG Japan CoreAlpha Fund has risen 44% over this time, boosting the trust's returns. The managers have been taking profits from this position over recent months as Japan moves closer what they believe to be fair value.

Relative to the IA UK Equity Income sector, the trust performed well during the financial crisis of 2008, due in part to its exposure to defensive managers. This positioning caused the trust to lag its peers following the market rotation in March 2009 as economically-sensitive stocks, particularly under-represented within the portfolio, rebounded strongly as a result of Bank of England's Quantitative Easing program. However, since launch in October 2002, the HL Multi-Manager Income & Growth Trust has risen 248% compared with 191.4% for the average fund in the sector, although past performance is not a guide to the future.

Performance of the HL Multi-Manager Income & Growth Fund since launch

Past performance is not a guide to future returns. Source: Lipper IM* to 01/06/15

The trust also currently offers an attractive yield of 3.7% compared with 3.2% for the FTSE All Share Index. The Trust has increased its dividend in 12 of the 14 years it has been running and £10,000 invested at launch would have produced income of £7,339 and the investment would be worth £21,565 - a total of £28,904. If however, all income had been reinvested, the investment would today be worth £34,794.

Our view on this fund

We have long been advocates of an equity income strategy. Its objective of generating both income and capital growth is precisely what many investors seek. A multi-manager approach removes some of the investment responsibility and provides investors with peace of mind that their money is looked after by our experts. Lee Gardhouse and Ellen Powley make investment decisions on behalf of investors automatically. They have a strong track record of good investment decisions and the trust has delivered exceptional long-term returns.

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.