HL Multi-Manager funds – reduction to income payments

The coronavirus pandemic has affected many companies’ ability to pay dividends. Some companies have seen their revenues fall, meaning they have less cash to pay out to shareholders. Other sectors are taking a cautious approach, and while they have some cash now, they have chosen to cut dividends to protect the future of the business, and best serve employees and the public.

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 which have cut or suspended their dividend.

We also expect income from bonds will be impacted, though to a lesser extent. When there is an economic slowdown, this can mean some companies 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.

Cuts to income payments on the HL Multi-Manager funds

The Multi-Manager team has spoken to the managers of the underlying funds about their expectations for income for the rest of the year. As a result they’ve taken the decision to cut the dividend on four of the Multi-Manager funds to reflect the current circumstances and the market outlook.

The HL portfolio managers expect these cuts to be temporary, and hope to be in a position to increase dividends again in due course.

The aim is to provide some uplift in the year-end dividend payment, due to be paid on 30 October 2020.

The reduced dividend payments are shown below, but it’s important to note that the income stream will be under constant review. Further changes might be necessary as the coronavirus situation develops, and as the economic outlook becomes clearer. Income is variable and not guaranteed.

Although no one really knows how long the impact of the virus is going to last, we take encouragement in 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 near to 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.

How dividends have been adjusted

The following cuts are based on the assumption that dividends from the UK stock market fall by 50%, global dividends fall by 25% and income from bonds falls by 5%. Income from bond holdings has been falling over the past year as money from maturing bonds was re-invested into lower yielding assets. There has therefore been an additional reduction in our assumptions to maintain a cautious approach.

The cuts will take effect from the payment due on 29 May.

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