On the first anniversary of the launch of the Architas Global Equity Income fund, manager Alex Burn has described how the vehicle has benefitted from its fund of funds structure.
Launched on 20 July 2017, the fund has returned 6.7% against the 6.3% IA Global Equity Income average over one year, while over three months the fund is up 6.3% compared to the 5.6% peer group average, FE data shows. The current yield is 3.38%.
The fund aims to provide income together with capital growth over the medium to long term by investing in open- and closed-ended funds that hold dividend-paying global companies, with the potential to use covered calls or hedging derivative strategies to enhance income.
"We have the 'first mover' advantage," Burn said. "I think we were the first to employ this approach in global equity income."
Burn, who co-manages the fund alongside Sheldon MacDonald, explained the fund is split into four categories: premium income; active funds with an income tilt; smart beta income and traditional passive strategies.
Around 25% of the fund is in 'premium income' strategies, such as high income funds, covered calls, and derivative strategies, which Burn says "is an expensive strategy, but it offers superior income".
BlackRock Continental European Income is the sole holding in the 'active funds with an income tilt' category, making up 10% of the fund.
Smart-beta holdings (12% of the portfolio) tend to focus on the US due to the "low level of income" found there, such as the PowerShares S&P 500 High Dividend Low Volatility UCITS ETF, which is currently yielding 3.1%. The remainder of the fund is in traditional passive strategies.
"The question we have to ask is whether using the other strategies offers value for money. If not, can we own traditional passive strategies?" Burn said.
The fund is a concentrated portfolio of 13 holdings with a low turnover of around 25%.
"My preference is to be as concentrated as we can be," Burn said. "If we have ten funds, we only need six to outperform the benchmark. As a fund of funds, we already have diversity in the underlying managers."
Since launch, the fund has gathered £3.2m in assets, largely seed capital as the firm plans to incubate the fund for up to two years.
"We have changed tack in how we market funds over the past couple of years," Burn explained.
"As we question investing in funds with less than a three-year track record, we are cognisant that the market will do the same."