The Hawksmoor Distribution fund is expected to produce a yield of 3.95% over the next 12 months – 25% lower than it "might ordinarily be" according to the firm, following cancellations or deferrals of dividend payments by some companies due to the ongoing coronavirus pandemic.
The team that runs the £195m fund-of-funds, which pays out dividends on a quarterly basis at the end of March, June, September and December each year, said the Q1 pay-out to investors would have been unaffected by the virus, but the June payment will come from income collected in February, March and April so will "be the first to reflect recent travails".
"Note that the 30 June payment is always a lower payment than other quarters, so do not be alarmed if the ‘run rate' at this point looks low," it reasoned.
"The fund receives income from its investments at different times: some holdings pay income monthly, some quarterly, some only twice a year.
"This means that we collect more income in some months than others, with January, July and August being particularly fruitful months."
Following virtual meetings with all of the fund managers in the portfolio and "hundreds of hours" of due diligence, the team - which is headed up by Daniel Lockyer and Ben Conway - has projected "the assumed haircuts" to dividend payments until Q1 2021.
These include 50% for equity income funds, particularly those investing in the UK; 25% to 30% for equity income funds with a bias to particularly sectors or which use call-overwriting; and "smaller amounts" for funds invested in corporate bonds.
The team expects no reductions in dividends for funds holding assets immune to market movements - such as song royalties - but "varying" dividend cuts from its investment trust holdings given some have revenue reserves and others are REITs, whose rental income "may be largely unaffected" by "coronavirus-generated headwinds".
In order to protect the fund's dividend profile, the team has increased credit exposure given that corporate management is "clearly prioritising bond holders over shareholders", upped its weighting to equity funds that write call options as this generates extra income from option premia, and has maintained its high exposure to REITs.
"We would like to reassure investors in our Distribution fund that our high level of diversification works in our favour when it comes to continued generation of income," the team said.
"We have also modelled our projected income on a month by month basis if [investors] need that level of detail (please get in touch if you do).
"For the sake of absolute transparency, we would be very happy to run [investors] through our assumptions on the haircuts we have applied to our holdings' income generation."
Since its launch in April 2012, the fund has returned 66.5% in total return terms compared to its average peer in the IA Mixed Investment 40%-85% Shares sector's return of 54.1%, according to data from FE fundinfo.