The CF Seneca Diversified Income Fund recently changed its name from the CF Miton Distribution Fund, following the acquisition of Miton Capital Partners by Seneca Investment Managers Limited on 31 March this year. The investment team, approach and objectives of the fund, however, remain unchanged.
The fund is managed by Alan Borrows (lead manager since launch in April 2002) and Richard Parfect (co-manager since July 2010). It invests in a wide range of assets, including UK and overseas shares, corporate and government bonds, cash and alternative assets such as property, renewable energy and infrastructure. These are held both directly and indirectly through funds and investment trusts, with the aim of generating an attractive and growing income over the long term.
The managers remain relatively upbeat on the prospects for global stock markets. Around 28% of the portfolio is currently held in UK shares such as Marston's. The company is restructuring its portfolio and expanding its higher-margin food offering. This is freeing up cash to return to shareholders. The shares currently yield 4.3%, which the managers believe has the potential to grow. The fund also holds a number of real estate investment trusts, which invest in UK commercial property such as shops and offices. These provide an attractive level of income and have been significant beneficiaries of an improving economic backdrop. Less positively, Tesco has been sold from the portfolio, following a string of profit warnings and a 75% cut to its interim dividend.
The fund's overseas equity allocation currently stands at around 20%. This is biased towards Asia and Europe where many companies offer attractive yields and undemanding valuations. By contrast, the fund has very little exposure to the US. The strong performance of the US stock market over recent years means valuations are high, according to Alan Borrows and Richard Parfect, and opportunities for income-seekers are few and far between.
The fund's fixed interest allocation currently stands at the lower end of its permitted range (around 30%).The managers remain cautious on government bonds believing yields do not adequately compensate investors for the risks. As a result the fixed interest exposure is biased towards corporate bond funds; particularly those with the ability to navigate a rising interest rate environment.
The remainder of the fund is invested in 'alternative/niche' areas which provide further diversification benefits and an additional source of income. This includes investments in property and infrastructure, both of which should offer a degree of inflation-protection. The fund also has exposure to renewable energy investments, such as Bluefield Solar Income Fund and Foresight Solar Fund; both held for their ability to deliver a growing level of income.
Our view on this fund
The fund currently yields 5.4% (variable and not guaranteed) making it one of the highest yielding funds in the IMA Mixed Investment 20-60% shares sector. Income is paid quarterly and therefore the fund could appeal to investors seeking a regular source of income from a broad range of assets. Note, however, the fund has struggled to grow its income payments over the last five years (see table below):
|Year||Annual dividend||% change from previous year|
Source: Lipper IM
The fund's capital performance has also been relatively uninspiring. Since launch in April 2002, it has performed broadly in line with its sector, but has tended to be more volatile and endured a particularly difficult financial crisis. As such the fund does not currently feature on the Wealth 150 list of our favourite funds across the major sectors.
Please note the fund's charges can be taken from capital, which can increase the yield but reduce the potential for capital growth.