HL Multi-Manager funds – income update

As a direct consequence of the coronavirus pandemic, in May 2020 we decided to cut the dividend on four of our Multi-Manager funds. The Covid crisis has affected, and still affects, lots of companies’ ability to pay dividends.

Some companies have seen their revenues fall, meaning they have less cash to pay out to shareholders. Other businesses have taken a cautious approach. While they still have some cash now, they’ve chosen to cut dividends to protect the future of the business, and best serve employees and the public.

The HL Multi-Manager team also expects income from bonds to continue to be impacted, although not as much as dividends. When there’s a slowdown in the economy, some companies can struggle to repay their debt. Bond funds hold a diverse spread of underlying investments. But if an issuer isn’t able to pay a bondholder, there could be an impact on the fund’s yield.

So where do we stand with income payments?

The HL Multi-Manager portfolios invest in a broad range of funds. These funds, in turn, are invested in a wide selection of underlying shares and bonds. These investments include shares in a number of companies that have cut or suspended their dividend, and bonds from issuers that have been affected.

The cuts in May were meant to be temporary. But the HL portfolio managers, supported by numerous discussions with the managers of the underlying funds, think the dividend should broadly remain in line with the May levels. That’s at least for the next few months to reflect a more cautious approach and what’s going on in the markets.

The aim is to provide some uplift in the year-end dividend payment, due to be paid on 30 October 2021.

Although nobody really knows how long the impact of the virus will last, we’re encouraged by the conversations we’ve had with fund managers. While there have been significant dividend cuts, a number of firms are expected to reinstate dividends in the medium term. Although as ever there are no guarantees.

We’ll stay in close contact with the underlying managers and continue to monitor their investments.

The new level of monthly dividend payments are shown below. It’s important to note the income stream will be under constant review. Further changes might be needed as more news comes in on coronavirus, hopefully positive, and as the outlook on the economy becomes clearer. As always, income is variable and not guaranteed.

How dividends have been adjusted

The cuts in May were based on the assumption dividends from the UK stock market would fall by 50%, global (ex-UK) by 25% and income from bonds by 5%. The income from bond holdings has been falling over the past year, as money from maturing bonds was re-invested into lower yielding investments. But, we’re now slightly less cautious than we were before.

We used the same assumptions to re-adjust the dividend level to be paid from November and were able to give a slight uplift for HL Multi-Manager Strategic Bond. This was because some of our managers’ were able to deliver higher dividends themselves.

We increased the HL Multi-Manager Income & Growth dividend from the August payment. But we had to slightly reduce the HL Multi-Manager Equity & Bond dividend for the same period.

All revisions were based on our underlying managers’ assumptions and market consensus on individual companies’ ability to hand out dividends in the next few months. All levels will stay under constant monitoring and will be adjusted as appropriate.

The new monthly distribution levels will take effect from the payment due on 30 November 2020.

HL Multi-Manager funds are managed by our sister company Hargreaves Lansdown Fund Managers.