MultiManager Income Fund

Key points

• A multi-asset fund holding equities, bonds and cash with the additional option of investing in private equity, structured products and property
• Target yield in excess of the MSCI World Index
• Investment management responsibility for the fund has been with John Husselbee of North Investment Partners since July 2004
• Sector: IMA Mixed Investments 20-60% Shares

Current views

December saw eurozone leaders attend yet another emergency summit on the European sovereign-debt crisis. Despite repeated disappointments following previous summits, markets yet again gave politicians the benefit of the doubt, with risk assets moving higher in the lead up to the meeting. Somewhat predictably, it turned out to be another case of ‘buy the rumour’, ‘sell the fact’. Although the latest plan included a commitment by 26 EU nations (the UK opted out) toward a greater fiscal unity, once again limited detail was provided on how the mechanics would work in practice.

Following the initial disappointment that greeted the results of the EU summit, equity markets gradually moved higher towards month end, albeit on very thin volumes. While the UK, US and European markets all posted positive gains, emerging markets continued to lag.

Gilt yields continued to fall as the bond market remained on ‘red alert’ over the events unfolding in the Eurozone. Improved US economic data has not been enough to stop safe-haven buying in gilts, bunds and treasuries. Credit enjoyed a good month, with high yield the strongest performer.

Gilt yields remained anchored to near historical lows. It is possible a further deterioration in the global economy or in Europe could send yields lower. However, this does not determine sensible investment positioning. The 2% yield investors currently receive for buying 10-year government debt offers precious little protection against inflation and provides no cushion against the potential capital loss associated with a steep increase in yields. For us, they remain an unattractive asset class whose value is being driven by non-price sensitive buyers.

We continue to see good risk return characteristics in credit, in particular short duration high yield strategies where the default rate will remain low throughout 2012 and we believe that the current yields of 5-6% more than compensate investors for potential default risk.

With the number of non-correlated asset classes continuing to dwindle, we have looked to alterative investment strategies in order to add further diversification to the portfolios. December saw the investment of the CATco Reinsurance Fund across the fund. The vehicle provides reinsurance cover to reinsurers and has displayed a return profile highly uncorrelated to any other asset class.

We enter 2012 with a fairly cautious tone. The hurdles facing the global economy should not be underestimated and with many asset prices appearing fully valued, the risks appear to lie to the downside. The good news is there are pockets of genuine value, in certain cases extremely good value. We have positioned the fund in order to benefit from a re-rating in these assets, while at the same time also exploring alternative investments to provide the fund with much needed diversification in the current environment.

Asset allocation