"Makes more sense for most investors": Q&A with Josh Hall on the Aberdeen Multi-Asset Income Fund
For the last five years the Aberdeen Multi-Asset Income Fund has delivered a distribution yield of around 4%-5% each year, and has met both its income and capital growth objectives since its launch in 2009. We speak with Aberdeen investment specialist Josh Hall to find out more about the Fund's goals and investment style, the reasons why investors should consider a multi-asset approach in the current economic climate, and what makes the Fund unique.
For the last five years the Aberdeen Multi-Asset Income Fund has delivered a distribution yield of around 4%-5% each year, and has met both its income and capital growth objectives since its launch in 2009. We speak with Aberdeen investment specialist Josh Hall to find out more about the Fund's goals and investment style, the reasons why investors should consider a multi-asset approach in the current economic climate, and what makes the Fund unique.
Can you explain your approach to multi-asset investing?
Our approach to multi-asset investing is really quite simple. Firstly we focus on aiming to achieve investment outcomes that are aligned to what real world investors are looking to achieve. What we mean by this is a focus on performance outcomes where we aim to achieve returns above inflation or cash, rather than simply trying to beat (or indeed replicate) a benchmark or index. We also aim to achieve these more customer orientated performance outcomes with less downside risk and less overall volatility.
Secondly, in order to achieve these objectives, we strongly believe in the benefits of diversification. As a result we generally invest across more asset classes and markets compared to many of our peers, but only where there is incremental benefit to adding additional asset classes / markets to a portfolio. This includes traditional asset classes like developed market equities, bonds and property but increasingly less traditional asset classes and sources of return including; emerging market bonds and equities, loans and credit, and various other alternatives.
As a large, global investment house with very broad expertise in various asset classes and regions around the world, we believe we are well positioned to manage such broadly diversified multi-asset strategies.
Why should investors consider a multi-asset fund in the current economic climate?
Strategically, multi-asset investing, with a focus on providing returns above cash or inflation, simply makes more sense for most investors. It creates a stronger alignment between the objectives of the fund and the end investor.
However, multi-asset investing is increasingly becoming more relevant from a tactical point of view also. For most of the last three to four decades the returns from traditional asset classes, like developed market equities, bonds and property, have been buoyed by declining interest rates and inflation. This has led to above-average returns from these parts of the market. So using a traditional 60/40 diversified portfolio with a benchmark relative focus, which only invested in these traditional markets, has absolutely been the right approach. However most of these traditional asset classes are now quite expensive (think global sovereign bonds trading on negative yields) and so the prospective returns from this traditional 60/40 approach are likely to be far lower. In this environment, we believe a multi-asset approach which both refocuses investment objectives to be more aligned to outperforming objectives like cash and CPI, and invests in a wider range of both traditional and less traditional asset classes, is the best response to the changing investment market landscape.
How would you describe the goals of the Multi-Asset Income Fund?
The goals of the Aberdeen Multi-Asset Income Fund are quite simple. It aims to deliver regular predictable, inflation-linked monthly income.
Firstly, the Fund aims to deliver an income return higher than both cash and special rates from term deposits. We believe investors and advisers can seek out these returns quite easily themselves and so we need to prove a level of value by achieving an income return above these levels, net of fees. In reality the Fund has achieved an income yield of around 4-5% per annum for each of the last 5 years, in the face of cash and term deposit rates more than halving over that period.
Secondly, the Fund aims to achieve capital growth over time to offset the risk of inflation. In reality we are aiming for the capital growth of the portfolio to increase by around 2-3% per annum over time. What this means is that the regular income yield of, say, 4-5%, is actually growing each year in dollar terms and the capital base has increased.
Thirdly, and quite uniquely for a managed fund, in July each year we also pre-announce the expected annual distribution rate for that upcoming financial year. We then smooth the distributions so investors receive a regular, almost wage-like, monthly payment from the Fund. Any residual income is paid out at 30 June each year. For the current 2017/18 financial year we have pre-announced an expected distribution yield of 4.44%, well above the prevailing cash rate of 1.50%.
What have been the key drivers of performance recently?
Most asset classes have contributed positively to meeting the Fund's income and growth objectives in recent years with the high dividend yields and franking credits from Australian equities being the single largest contributor over the last few years.
We tend to have a bias towards Australian assets across equities, bonds and cash as the yields available on these asset classes in Australia are generally much higher compare to many offshore markets, as well as the additional benefit of franking credits from Australian equities.
However, over the last 12 months or so we have increased the allocation to offshore assets from around 15% towards 25% to further diversify exposures within the Fund and therefore increase those diversification benefits. This has included relatively small but beneficial exposures to high yielding global equities, global credit, loans and emerging market debt, as well as some exposure to various global alternative assets.
