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Investment Times

Away from the limelight: Ecclesiastical Higher Income

| 6 April 2015 | A A A
Away from the limelight: Ecclesiastical Higher Income

No recommendation

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Fund management is awash with star names, but away from the limelight there are a number of managers quietly plying their trade with great success.

Few investors will be familiar with Robin Hepworth of Ecclesiastical Investment Management. He has been lead manager of the Ecclesiastical Higher Income Fund since its launch in 1994. This is a core income fund, diversified across shares and bonds, aiming to deliver an attractive yield and capital growth potential. It currently yields 4.2% (variable and not guaranteed).

View the Ecclesiastical Higher Income factsheet

In a recent meeting with Robin Hepworth I felt his presentation would be a good lesson to younger, and even some older, fund managers. He explained his approach and philosophy succinctly, without jargon and without the need for me to go into a dark room afterwards to try and understand it all! I find those who are able to explain what they do in the first few minutes of a meeting often have the clarity of thought which makes them exceptional fund managers.

A multi-asset portfolio, the fund holds around 70% in shares and 30% in bonds and cash. Robin Hepworth is, however, prepared to be flexible with this positioning – leading up to the 2008 crisis, the bond and cash weighting was increased significantly, providing some shelter against the worst of the stock market falls. Naturally there are no guarantees he will get these calls right every time, and like all stock market investments the fund will fall as well as rise in value, so investors could lose money.

Robin Hepworth purchases stocks with a long-term view, aiming to hold them through fluctuations in the business cycle. Portfolio turnover (how frequently holdings are bought and sold) is low. The fund is well diversified with around 120 holdings.

He favours attractively valued companies with strong balance sheets, paying good dividends. This approach leads him to focus on out-of-favour companies whose share prices have fallen, but which he expects will recuperate contrary to the forecasts of other investors.

The portfolio is biased towards the UK, but also offers some geographic diversification. A small proportion - around 7% - is currently allocated to higher risk Asian & emerging markets, while contrarian thinking has led to increased European exposure. He currently favours exporters, which could benefit from cheaper oil and a weakening euro.

View the Ecclesiastical Higher Income factsheet

Unusually for a global fund, exposure to the US is limited - according to Mr Hepworth, when US companies begin to increase capital expenditure, this will hit short-term profits. Furthermore, after a good run the US market looks more expensive than many peers.

The bond portion of the portfolio contains a number of ‘preference shares’, setting the fund apart from many of its peers. These are a hybrid between an ordinary share and a corporate bond. They typically pay a fixed dividend, which must be paid before any dividend to ordinary shareholders, and rank higher than ordinary shares (but lower than corporate bonds) in the event the business is wound up. Around 8% of the fund is allocated here, with many of these positions yielding around 5%. He also invests in a number of PIBS (Permanent Interest Bearing Shares) issued by building societies including Nationwide and Coventry.

Our verdict

This fund offers exposure to a highly experienced fund manager with the confidence to take a genuinely contrarian and active approach. These qualities are proclaimed by many fund managers but, in practice, they can be hard to fulfil.

The fund has performed exceptionally well over the long term, delivering growth of 501.6% (with income reinvested) since launch in 1994, compared with 240.9% for the average fund in the sector. Please remember past performance is not a guide to future returns. In my view the fund could provide the core to many portfolios. Investors via Hargreaves Lansdown benefit from an exclusive reduction in the ongoing charge to just 0.48% annually. There is also an annual administration charge to hold funds in Vantage of up to 0.45%.

Performance since launch

Past performance is not a guide to future returns

Mar 10 -
Mar 11
Mar 11 -
Mar 12
Mar 12 -
Mar 13
Mar 13 -
Mar 14
Mar 14 -
Mar 15
Ecclesiastical Higher Income 12.6% 13.7% 16.0% 4.5% 9.2%

Ecclesiastical Higher Income

Net initial charge 0.00%
Ongoing charge (OCF/TER) 0.83%
Annual saving 0.35%
Net OCF/TER 0.48%
Performance fee No
Yield (variable and not guaranteed) 4.2%

Fund charges are taken from capital, which increases the yield but reduces the potential for capital growth. There is a tiered annual administration charge to hold funds with a maximum of 0.45%. Where savings are paid as loyalty bonus, they may be subject to tax in the Fund & Share Account.

View our charges

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.

The value of investments can go down in value as well as up, so you could get back less than you invest. It is therefore important that you understand the risks and commitments. This website is not personal advice based on your circumstances. So you can make informed decisions for yourself we aim to provide you with the best information, best service and best prices. If you are unsure about the suitability of an investment please contact us for advice.