HL Multi-Manager funds income update – where do we stand now?

The global pandemic has cast a long shadow over society, as well as presenting huge challenges to companies and whole industries. It's accelerated existing themes, like the deepening impact of technology on our lives and the longer-term decline in the demand for fossil fuels.

The speed and scale of the Covid-19 crisis called into question whether dividends could, or should, continue to be paid. Some natural hunting grounds for income, like banks and oil, were hit hard as the pandemic reduced demand for travel and caused sharp falls in GDP (Gross Domestic Product) across all major economies.

The UK, as a major dividend paying market and one in which banks and oils feature heavily, was especially affected. Government bond yields fell with rising bond prices as investors sought sanctuary.

The longer-term impact of the pandemic on dividend-paying companies will take several years to play out. Some companies and industries, like oil, might use this as a chance to reduce dividends to more sustainable levels. This could reduce overall future dividend yields for certain sectors.

Remember, past performance isn't a guide to future returns. As always, income is variable and not guaranteed.

What this meant for the Multi-Manager fund distributions

As the pandemic took hold through 2020, it became clear that the effects on the economy were widespread and had serious implications on the returns from shares and bonds. These unprecedented events dramatically reduced the level of income across the market and that received by the Multi-Manager funds.

In May 2020, we decided to rebase the monthly distributions on four of our Multi-Manager funds to reflect the prevailing and expected environment for income. This was very disappointing, but we felt it was the most sensible thing to do for investors at the time.

We know lots of our clients rely on the income from their investments. But we felt that it was important to reflect the prevailing market situation and not put investors capital at undue risk by attempting to pay out more income than the funds would naturally receive.

The funds' financial year end is 30 September and in October each year we set a base level of monthly income per unit based upon our outlook for financial markets and returns from different types of investments. This helps us smooth out any ups and downs in the income we get from our underlying investments and try to keep payments more steady – we keep this level under constant review. Whatever's left is then distributed in a balancing payment at the end of the financial year.

What's happened so far this year?

We speak regularly with the fund managers we invest with in the fund. They've seen a recovery in the dividends received from their holdings, with lots of companies having reinstated payments or indicated they will. However, it's unlikely these payments across the market will be as high as pre-pandemic levels.

Turning to fixed income, yields on 10-year US Treasury bonds reached highs of 1.7% from very low historic levels, but have since retreated slightly to 1.58%. UK and European government bond yields haven't moved as far, as they lag the US in exiting from lockdowns.

To help the US economy recover from the pandemic, the US Federal Reserve has begun to focus on full employment at the expense of higher inflation. With pent up consumer demand, high levels of government spending and accommodative central banks, it's easy to see why increased inflation might be on investors' minds. These moves have had the effect of modestly increasing the distributions from our underlying bond funds after years of declining yields.

Changes to distributions from the first quarter of 2021

Given the recovery in UK dividends and developments in bond markets, we think there's improving clarity and confidence surrounding the outlook for the income we receive.

As a result we've decided to increase the monthly distributions on three of our Multi-Manager funds from the first quarter of 2021. The changes are set out below with the size of each increase depending on the mix of underlying assets the fund has.

The world's still a long way off from where it was before. But we think these small changes herald a tentative return to a more normal environment for investors. We'll continue to update clients as our views evolve.

Changes to our income schedule

HL MULTI-MANAGER EQUITY & BOND TRUST factsheet, including charges

HL MULTI-MANAGER EQUITY & BOND TRUST KEY INVESTOR INFORMATION

HL MULTI-MANAGER INCOME & GROWTH TRUST factsheet, INCLUDING CHARGES

HL MULTI-MANAGER INCOME & GROWTH TRUST KEY INVESTOR INFORMATION

HL MULTI-MANAGER STRATEGIC BOND TRUST factsheet, INCLUDING CHARGES

HL MULTI-MANAGER STRATEGIC BOND TRUST KEY INVESTOR INFORMATION

HL Multi-Manager funds are run by HL Fund Managers Ltd.