By Craig Rippe, Head of Multi-Asset
It has become a strange year for celebrating birthdays, but the LF Canlife Diversified Monthly Income Fund deserves some recognition on its upcoming first anniversary for delivering what it set out to do since its inception on the 1st of July 2019: provide steady monthly income with capital growth potential. The Fund, which aims to pay a monthly yield in excess of 4%, has held its own despite a rocky year in the markets and, more recently, the record round of dividend cuts in the financial and oil sectors.
So far in 2020, the Fund has been outperforming its monthly paying 20-60% peers*, partly because it had both a quality and tech bias. We have kept the risk under control from the start, concentrating on higher quality assets rather than highest yielding, as well as staying consistent instead of going for short-term gains.
For example, HICL, an infrastructure company, was added in Q4 2019 and has been an excellent diversifier with both its price and the dividend remaining relatively steady throughout the covid-19 crisis. We also purchased a mandatory convertible preference share with an 8% coupon issued by Broadcom, an American designer and manufacturer of a wide range of semiconductor and infrastructure software products, as a way of accessing a quality tech name but with an income.
We made similar purchases more recently in a 5% Danaher preference share and a 5.5% Boston Scientific preference share. Both Danaher, a global diversified conglomerate based in Washington DC, and Boston Scientific have a focus on medical devices and other healthcare related products.
Looking back, we took the view in 2019 that high yield credit was pricing in too little risk and stayed underweight that source of income, instead adding a little in March via two high yield bond investment trusts at a much higher yield than previously available. Our biggest single stock position throughout this first year since inception has been Microsoft, which reached new absolute highs in May, and which we have had to trim a number of times as it outperformed.
As covid-19 set in, we responded to dividend cuts by seeking new value opportunities in our usual simple and low risk fashion. For example, in March and April, we started building up a diversified range of small positions, of 30-50bps each, in attractive income producing solutions, including aforementioned high yield bond investment trusts, a 6% yielding gold-producer, a supermarket REIT, two Canadian-listed renewable energy- and one UK-listed global energy-supplier.
As the lockdown is slowly lifted and the new norm becomes clearer, we continue to keep focused on what new themes and highly successful areas of business will emerge from the crisis and those that will not. We reduced HSBC after its dividend cut, and added to Phoenix Group, the largest life and pensions consolidator in Europe, which has benefited the Fund. We sold Signature Aviation after its dividend cut, but held on to housebuilding group Persimmon despite its own cut. This has proved positive for the Fund given the strong rally in this sector as the housing market re-opened to a welcomed increase in new orders.
The outlook remains as unclear as ever, as an unprecedented economic collapse is offset with the largest stimulus package by central banks on record. We suspect that the monetary and fiscal response may well prove to be larger than was needed. However, we are optimistic for the prospects for the Fund as it rolls into its second year.
Past performance is not a guide to future performance. The value of investments may fall as well as rise and investors may not get back the amount invested. Income from investments may fluctuate. Currency fluctuations can also affect performance.
The views expressed in this document are those of the fund manager at the time of publication and should not be taken as advice, a forecast or a recommendation to buy or sell securities. These views are subject to change at any time without notice.
The information contained in this document is provided for use by investment professionals and is not for onward distribution to, or to be relied upon by, retail investors. No guarantee, warranty or representation (express or implied) is given as to the document’s accuracy or completeness. This document is issued for information only by Canada Life Investments. This document does not constitute a direct offer to anyone, or a solicitation by anyone, to subscribe for shares or buy units in fund(s). Subscription for shares and buying units in the fund(s) must only be made on the basis of the latest Prospectus and the Key Investor Information Document (KIID) available at www.canadalifeinvestments.com.
Data Source - © 2020 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.
*Source: Canada Life Investments using Morningstar data, bid to bid with income reinvested from 01/01/20 to 04/06/20. Peer group of 22 Monthly paying funds in the IA Mixed Investment 20-60% C Inc Shares class sector
Canada Life Investments is the brand for investment management activities undertaken by Canada Life Asset Management Limited, Canada Life Limited and Canada Life European Real Estate Limited. Canada Life Asset Management Limited (no. 03846821), Canada Life Limited (no.00973271) and Canada Life European Real Estate Limited (no. 03846823) are all registered in England and the registered office for all three entities is Canada Life Place, Potters Bar, Hertfordshire EN6 5BA. Canada Life Asset Management is authorised and regulated by the Financial Conduct Authority. Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
CLI1638 Expiry on 30/06/2021