The Fund That Pays a Monthly Income and Yields 4.7%

Income investors who rely to a large extent on the money generated from their portfolio would want to achieve a regular stream of receipts that they could use to meet their normal outgoings. The easiest way to do this would be to invest in funds that pay a monthly income.

A good example is Premier Multi-Asset Monthly Income, which operates in the Investment Association’s Mixed Investment 20%-60% Shares Sector and has an exceptional record. Over the last five years it has generated a total return of 64.9%, which puts it in sixth place out of the 140 funds. It also has one of the highest historic yields of 4.7%.

The £549m fund aims to provide a high level of income by investing in externally managed funds as well as individual shares and bonds. Between 20% and 60% of the underlying exposure has to be in equities, with a minimum of 30% in fixed interest and cash, which leaves plenty of scope to include other areas such as commercial property and alternatives.

It was set up in January 2009 and is run by a team of four that is led by David Hambidge, who is the director of multi-asset funds at the company. The monthly income fund has generated positive total returns in each of the last five calendar years other than 2011 when it lost 2%.

At the end of July there were a total of 56 holdings, most of which were other funds. The largest area was the 28.3% in UK equities, followed by 18.1% in corporate bonds, 15.5% in other bonds, 13% in international equities, 7.3% in property, 4.4% in alternatives, 4.3% in other equities, 1.5% in emerging market debt and 7.5% in cash.

The asset allocation of the fund is dynamically managed to capture the best opportunities. For example, last August and September the managers took advantage of the market weakness to top up their exposure to UK large cap equities that had suffered the worst of the sell-off. This was paid for out of cash and by reducing the allocation to commercial property where the price rises had started to slow.

Hambidge and his team also reacted to the volatility in the run up to the referendum and the immediate aftermath by switching into some undervalued holdings as they thought that many UK assets had been oversold.

The other area where they can add value is good stock selection by picking the best managers in each area. At the end of July the fund’s largest individual holdings were: Franklin UK Equity Income, Fidelity Enhanced Income, TwentyFour Dynamic Bond and Liontrust European Enhanced Income.

Investing in a multi-asset, multi-manager fund has the advantage of providing extra diversification, which helps to produce a more reliable level of income and greater capital stability. The main downside is the higher cost, with the fund having ongoing charges of 1.42%, which includes the 0.75% annual management fee.

The chart shows that it has generated a decent total return since launch, with the accumulation share class (with reinvested dividends) up over 100% in the seven and a half years. Its worst losses during the various market sell-offs were limited to around the 10% to 15% mark.

Premier Multi-Asset Monthly Income will mainly appeal to income investors, especially those who want a regular stream of receipts. Its 4.7% yield is extremely attractive in the current low interest rate environment, with the diversified nature of the portfolio limiting the risk to capital.