Thames River Multi-Capital believes the ability to maintain the income yield on its distribution fund of funds should make it more attractive to investors in the face of sharply falling yields across the main IMA sectors.
Each year, the firm reviews most of the IMA yielding sectors to identify trends in distribution yields. This year’s analysis shows all sectors have had consistent and significant falls over the last two years.
The average yield on equity income was down from 5.8 per cent to 3.9 per cent- a 33 per cent drop. The average yield in the IMA strategic bond sector fell by 30 per cent, IMA corporate bond yields were down by 19 per cent and IMA property yields dropped by 47 per cent.
Thames River’s distribution yield has been broadly flat at around 6 per cent but it says it could increase to 6.4 per cent or more.
The fund’s sustainable yield is attributed to a variety of income sources, including covered call strategies. This involves selling options on stocks that are already held in the portfolio, so that some of the potential growth will be sacrificed for an upfront payment.
Co-head of multi-manager Rob Burdett says: “We use a number of different types of fund in portfolio such as the Schroder maximiser range, which has a covered call strategy. The extra income we get from covered call writing goes up as volatility goes up.
“We have had pretty volatile market, so we have plugged the gap in yield through covered call writing strategies and a few niche funds such as MedicX, a property portfolio investing in doctors’ surgeries.”