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EdenTree Higher Income - cautious on the bond market but optimistic in outlook for equities

Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.
  • Exposure to equities is the highest it has been for some time, while bond and cash exposure has reduced
  • Robin Hepworth is positive in his outlook for the UK stock market
  • Long term performance is good and we rate the manager highly

Our view

Income-seeking investors generally turn to a bond or equity income fund to meet their needs and the IA Mixed Asset 40-85% Share sector is easily overlooked. However, while many funds in this sector pay a low, or even no, income there are those that focus on generating high and sustainable dividends for investors.

One of our favourite such funds is EdenTree Higher Income, a mixed-asset fund which includes overseas and UK equities, cash and bonds. It currently yields 4.28% which, given interest rates are unlikely to rise significantly in the near term, is highly appealing. However, please note that yield figures are variable and not a reliable indicator of future income.

Robin Hepworth has been at the helm since the fund’s launch in November 1994. Under his management the fund has produced excellent returns for investors. He is not afraid to shift the positioning of the fund quite drastically depending on where he finds opportunities, and this has added value for investors over the long term, according to our analysis. The fund retains its position on the Wealth 150+ list of our favourite funds with low charges. Please note, a Vantage fee of up to 0.45% per annum also applies.

Manager's outlook and fund positioning

The political and economic environment has shifted dramatically over the past few years. The rise of protectionist policies, which often impose tariffs and quotas on imported goods to improve the attractiveness of domestically produced products, creates an uncertain outlook for many international companies. Meanwhile, a long period of central bank manipulation and record low interest rates has caused many financial assets, particularly bonds, to rise strongly. As a result, Robin Hepworth has flipped the fund’s positioning. In the months following the 2008 financial crisis, 70% of the portfolio was exposed to bonds and cash, with the remaining 30% invested in equities. This compares with a 70% weighting to equites today.

Indeed, at 27% the fund now has the lowest exposure to bonds it has ever had. While government bonds such as gilts are very expensive, in the manager’s view, he feels there are niche areas that still offer good value. Preference shares, for example, are an overlooked area of the market with attractive yields. Bonds rated BB and below are also of interest as they fall outside the investment remit of many other investors, so offer a slight yield advantage. Exposure to this area has grown over the past few years, driven largely by a position in a BB-rated Tesco bond, which has performed well.

One of the fund’s largest equity positions is an investment in Shell. While innovations such as the electric car leave the manager cautious on the long-term prospects for the oil price, he believes we are at least 10 years away from these factors having a material impact on demand. Gas now accounts for a much larger portion of Shell’s business than it has in the past and the company also benefits from a strong downstream (refining and processing) arm. This means the health of the company’s balance sheet is now less influenced by the price of oil.

Unlike many of his peers Robin Hepworth is positive in his outlook for the UK stock market and has increased the fund’s exposure. He is also positive on Asia and Japan where he expects economic growth to quickly catch up with the developed world to the benefit of companies in these regions. Elsewhere, he feels the US stock market is highly valued, but is reluctant to avoid it completely as it accounts for a large portion of the global market. He therefore favours healthcare and telecoms companies for his US exposure, which he feels are fairly valued compared with their European counterparts.

What Robin Hepworth shares with many good fund managers is a very low turnover approach; he has added only eight new positions to the portfolio over the past year. Patience is a key element of his strategy, and he believes ‘doing nothing’ is often the best course of action. This is not complacency – it is an appreciation that the more decisions you make, the more you tend to get wrong.


While the long term performance of the fund is strong, shorter term returns relative to the sector have been lacklustre. Over the past year the fund’s performance was held back by a relatively low exposure to the oil, gas and mining sectors, which have performed well. The manager’s stock selection has also detracted from returns, according to our analysis. All managers undergo periods of underperformance and we remain confident in the manager to add value for investors over the long term.

Percentage performance of the EdenTree Higher Income Fund since launch

Past performance is not a guide to future returns. Source: Lipper IM to 31/05/17.

Annual percentage growth
May 12-
May 13
May 13 -
May 14
May 14 -
May 15
May 15 -
May 16
May 16 -
May 17
EdenTree Higher Income 23.19% 6.48% 7.61% -3.49% 18.5%
IA Mixed Investment 40-85% Shares 21.44% 4.54% 10.05% -3.48% 19.51%

Please note, charges are taken from capital which can increase the yield but reduces the potential for capital growth.

Find out more about this fund including how to invest

Please read the key features/key investor information document in addition to the information above.

Important information - Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice. No news or research item is a personal recommendation to deal.

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