Income investors have increasingly turned to multi-asset funds over recent years in a bid to generate cash flows from multiple parts of the market, but it can be difficult to find out which funds have actually delivered the highest payouts. 
In this series of articles, we have been finding out how much funds have paid out in income on an initial investment of £10,000 made at the start of 2013.
When we looked at UK equities, we found that the largest distributions have come from Insight Equity Income Booster, with MI Chelverton UK Equity Income and Majedie UK Income also ranked highly. In the IA Global Equity Income sector, Aptus Global Financials, Premier Global Infrastructure Income and Liontrust Global Income are at the table.
The table below reveals the top performers from the IA Flexible Investment, IA Mixed Investment 0-35% Shares, IA Mixed Investment 20-60% Shares, IA Mixed Investment 40-85% Shares and IA Volatility Managed sectors. The income paid is over the five years to the end of 2017.
Source: FE Analytics
As can be seen, it’s a relatively off-the-radar fund that sits at the top of the table. Mike Hodgson’s Schroder Mixed Distribution fund has assets under management of just £70.1m but it has paid out £3,311.16 on a £10,000 initial investment made five years ago.
The fund aims to generate an income from a balanced portfolio that is approximately half in equities and half in fixed income. It does this through investing in other Schroders fund: equity exposure is taken from the Schroder income maximiser range (on which Hodgson is a co-manager) while another five Schroder bond funds provide the fixed income allocation.
According to the latest factsheet, Schroder Strategic Bond is the largest holding as it makes up about one-third of the portfolio. Schroder Income Maximiser, Schroder ISF European Dividend Maximiser, Schroder ISF Global Dividend Maximiser and Schroder ISF Asian Dividend Maximiser each account for around 12 per cent.
The four FE Crown-rated fund has also performed well on a total return basis: FE Analytics shows it is currently in the IA Mixed Investment 20-60% Shares sector’s top quartile over one, three and five years. On a five-year view it has made a 37.65 per cent total return compared with a 27.10 per cent rise from its average peer.
The next two funds on the list are also relatively small multi-asset funds, both having assets under management of £110m.
Tony Yarrow’s TB Wise Multi-Asset Income fund has paid out £3,262.05 over the five years in question. This five FE Crown-rated offering uses a fund-of-funds approach to act as a ‘one-stop shop’ for income investors, with top holdings including Aberdeen Asian Income, BlackRock World Mining and Princess Private Equity.
LF Seneca Diversified Income, which also holds five FE Crowns, paid out £2,761.43 and is in third place. Its largest individual holdings are bond funds, with Royal London Short Duration Global High Yield Bond, Muzinich Short Duration High Yield and Royal London Sterling Extra Yield Bond being its biggest allocations.
Source: FE Analytics
The chart above shows the income payout history of the fund in fourth place after distributing £2,644.30 to its investors; with assets of £703.7m, Premier Multi-Asset Monthly Income is one of the larger members of the IA Mixed Investment 20-60% Shares sector.
Managers David Hambidge, Ian Rees, Simon Evan-Cook and David Thornton have a contrarian approach to investing, preferring to buy out-of-favour assets that are trading on attractive valuations.
The portfolio’s biggest holdings at present are Fidelity Enhanced Income, Franklin UK Equity Income, Polar Capital European (ex UK) Income, Polar Global Convertibles and Janus Henderson Fixed Interest Monthly Income.
Square Mile Investment Consulting & Research, which gives the fund an ‘AA’ rating, said: “The team has a long established investment approach and this has been implemented consistently for a number of years. They seek investments that will help to diversify the overall portfolio and those which can deliver stable and repeatable income streams.
“The valuation aware focus aims to ensure they are always seeking to invest into what they perceive is a discount to the current market value. This not only provides a potential to pick up on the discount to market value but also provides a downside hedge, based on the lower point of entry.”
Gary Potter and Rob Burdett’s £1.2bn F&C MM Navigator Distribution fund is another popular member of the IA Mixed Investment 20-60% Shares sector and it appears in fifth place in this research after paying out £2,589.63 over the past five years on an initial £10,000.
Potter and Burdett have been working with each other for more than 20 years and tend to build their fund-of-funds portfolios around experienced managers that they know well, although they are also keen to invest in promising younger funds. Top holdings include Schroder Income Maximiser, Artemis Global Income and Janus Henderson Strategic Bond.
Square Mile has given the fund an ‘AA’ rating and highlighted the experience of the managers as instrumental: “Their main strength is uncovering talented investment managers, sometimes in the early stages of their career, and backing them over the longer term. The team has excellent knowledge of the industry and we very much view them as sensible investors. They are willing to pay a premium, which can include performance fees, for what they perceive as highquality managers.”
Source: FE Analytics
Other well-known multi-asset funds that have paid out some of the highest income distributions over the past five years include Artemis Monthly Distribution (£2,574.55 on an initial £10,000), Premier Multi-Asset Distribution (£2,503.74) and Invesco Perpetual Distribution (£2,388.93).