HL Multi-Manager funds – how coronavirus will impact income

The fall in the stock market has affected the short-term performance of your investments. We’ve seen the value of global stocks fall since the beginning of the year, due to the expected impact of coronavirus on economic growth. In recent weeks, the value of certain bonds have fallen too.

Remember the current market conditions affects not just the value of your investment capital, but also the income potential of your portfolio.

In the 2008 global financial crisis, lots of companies cut their dividends, reducing the income that funds invested in them could pay.

This meant, in 2009, we cut the dividend on our HL MM Income & Growth portfolio from 3.05p per unit the previous year, to 2.86p per unit.

But, in 2010, we were able to increase it, and have increased the dividend every year subsequently, paying 4.93p per unit in 2019.

We don’t expect this increase to be sustained this year, and we will be adjusting the income stream for 2020.

We’re looking at the impact of the current market conditions on the income distribution on our dividend-paying Multi Manager portfolios. We’ll inform investors of any adjustments we make in the coming months.

If you’re looking to supplement any drop in income by selling units, you should be mindful that this could make income generation more difficult in the future.

Past performance isn’t a guide to the future.

HL Multi-Manager Income & Growth Fund

We’ve already seen some dividend cuts in the UK, and we expect more companies to announce changes to expectations in the coming weeks and months, even if these cuts are purely precautionary. Retailers, travel and leisure firms, bookmakers and house-builders have all announced either cancelled dividends, deferred pay-outs or suspended plans for share buy-backs. The oil and gas, and financial sectors might also see dividends cut or cancelled as the falling oil price and cut interest rates puts pressure on revenues.

We have exposure to a number of very experienced managers who have traded through the worst the market could throw at them. They’re modelling short-term dividend cuts of between 15% and 30% for their funds. This means the dividend on the HL MM Income & Growth Fund will likely be impacted, as it was during the global financial crisis.

We've also increased the amount of cash that we have in the portfolio to higher than normal levels. This lets the Multi Manager funds be nimble, but might also reduce the dividend as cash does not yield as much as equities.

HL MM Income & Growth Annual Income (£10,000 invested)

Future income payments could fall, past performance isn’t a guide to the future. Source: QlikView, 23/03/2020

Find out more about HL MM Income & Growth inc. charges

HL MM Income & Growth Key Investor Information

HL Multi-Manager High Income Fund

To generate a higher income the High Income fund invests in a mix of equity and fixed income funds. Over the past couple of weeks, the portfolio managers have raised some money from our fixed income holdings within the HL Multi-Manager funds. Fixed income funds haven’t been immune to the falls but so far have held up much better than equities.

The managers have raised this cash with a view to adding to equity positions when they believe the time is right. However, in taking profits from these positions, there’ll be an impact on the income generated by the portfolio, as they were contributing to the yield.

Investing in a mix of equities and bonds, the dividend on this portfolio will also be impacted by cuts in dividends across the UK market, and beyond. Some of this has been eased by weak sterling which has helped boost income paid by non-UK investments.

Inevitably, when we have an economic slowdown, this impacts companies revenues and the ability for some to repay their debt. Bond funds hold a diverse range of underlying investments. But if an issuer isn’t able to pay a bondholder there could be an impact on the headline yield, and in turn the dividend the HL MM High Income portfolio pays.

There is some good news for investors looking to the medium term however. A fall in the value of bonds today, means a rise in bond yields.

Bond fund managers will therefore be investing income paid out as coupons, and proceeds from maturing bonds, into higher yields. This could ultimately boost income in the medium term, even though there’s a lot of short-term uncertainty but could ultimately fall further.

The managers have the option to add more risk and income into the portfolio and it’s positive to see that governments have stepped up their economic support. However, they feel that it’s too early to add risk at this moment and are happy with the equity and fixed interest mix in the portfolio.

HL MM High Income Annual Income (£10,000 invested)

Future income payments could fall, past performance isn’t a guide to the future. Source: QlikView, 23/03/2020

Find out more about HL MM High Income inc. charges

HL MM High Income Key Investor Information

HL Multi-Manager Strategic Bond Trust

The HL MM Strategic Bond portfolio faces similar headwinds to the HL MM High Income portfolio – an increased cash allocation and some risk of underlying investments unable to service their loans.

It’s been right to have the diversification of bonds in a portfolio, and remains right not to have all your eggs in one basket. Yields have increased as prices have fallen and are looking more attractive than they have for some time. We have a significant exposure to lower risk Government bonds, such as those issued by the US and UK. While these bonds have held up well they continue to offer very low yields which constrains our income generation.

As prices began to fall the portfolio managers took some gains from investments in HL MM Strategic Bond. This portfolio owns a number of more defensive funds which have held up in recent weeks, and the managers have added to these positions.

The managers have scope to sell down exposure to lower risk fixed income assets as and when they feel it’s right to add to higher risk higher income options. But for the time being have taken a less risk seeking stance.

Investors should be mindful even when market volatility calms, it is still possible that you your capital and income can fall in value and you can get back less than you invest.

HL MM Strategic Bond Trust Annual Income (£10,000 invested)

Future income payments could fall, past performance isn’t a guide to the future. Source: QlikView, 23/03/2020

Find out more about HL MM Strategic Bond Trust inc. charges

HL MM Strategic Bond Fund Key Investor Information

N/A - performance for this period isn't available.

Past performance is not a guide to the future. Source: Lipper IM to 28/02/2020

HL Multi-Manager funds are managed by our sister company, HL Fund Managers Ltd.