3 Fund Picks for Income Investors

Co-Head of Multi-Asset for Old Mutual Global Investors, Anthony Gillham, picks three funds: equity, bonds and alternatives, for income investors

Emma Wall 12 September, 2016 | 10:26AM
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Emma Wall: Hello, and welcome to Morningstar. I'm Emma Wall and I'm joined today by Anthony Gillham, Co-Head of Multi-Asset for Old Mutual Global Investors.

Hi, Anthony.

Anthony Gillham: Good morning, Emma.

Wall: So, you're here today to give your three fund picks. What's the first one you'd like to highlight?

Gillham: Well, the first one I want to talk about is the Wells Fargo Short-Term High Yield Bond Fund. Now, this is a very interesting fund because I think it encompasses a number of really attractive characteristics, a number of attractive opportunities in the market that our clients can take advantage of.

The first is, as the name of the fund suggests, the fund is focused on shorter maturities or low maturity bonds issued by sub-investment-grade issuers in the United States. Now, after the problems that we saw in some parts of the high-yield market in the U.S. last year caused by falling oil prices, this has really had quite a big effect in terms of contagion forcing prices lower for much of that asset class.

Now, what the Wells Fargo Short-Term High Yield Bond Fund aims to do or is able to do rather is to take advantage of some of those price dislocations, so buy cheaper bonds. But because it's a shorter maturity emphasis in the portfolio actually does that in quite a safe way. Now the gentleman who manages that fund, Thomas Price from Wells Capital, an industry veteran.

He has been doing this since the mid-90s. And in his own words he looks to pick the safest bonds of the market. So, for us as investors, that's I think a really opportunity because it allows us to benefit from both attractive low prices but to do that in quite a safe low volatile way.

Wall: So, a fixed income fund. What's up next?

Gillham: Well, the next one I want to talk about is actually an investment trust. Being multi-asset managers a slightly perhaps difference focus. It'd be interesting to talk about. I want to talk about the Sequoia Economic Infrastructure Fund. Now, this investment trust is actually focused on a different area of the market and actually a number of interesting opportunities now right there because actually a lot of the opportunities arise from some of the dislocations that we've seen in the European banking sector. Banks in Europe are finding very difficult to lend at the moment, quite capital constrained.

They've still got a lot of bad assets on their balance sheet from the run up to the financial crisis. But that actually creates an opportunity for fund managers and for investment trusts like the Sequoia Economic Infrastructure Fund because it allows them to lend to areas of the market that were perhaps the preserve of the banks in the past but actually now because the banks' capital is starved, well they can't invest. So there are some exciting risk-adjusted yields to be had in this part of the market.

Now, specifically what the Sequoia fund does is it lends to infrastructure projects and so it's a good market opportunity, the banks aren't lending to at the moment, but also it gives us a slightly different flavor of investment returns, exposure to the debt of airports or seaports, railways, toll bridges, toll roads, the types of assets that probably aren't captured in your traditional equity or corporate bond exposure. So, I think a really exciting opportunity for us at the moment.

Wall: And the third and final pick?

Gillham: The final pick actually is one that's quite close to home. It's an Old Mutual fund actually that is run by some of our colleagues on the Global Equity team. It's called the Old Mutual Global Equity Income Fund. And again, as the name suggests, this is a portfolio that's quite traditional in many senses so far as it's a long-only global equity portfolio. But I think there are a number of really interesting twists that make it useful for our portfolios.

The first is the income angle. So, as your listeners may know, income is pretty difficult to come across these days and what the Old Mutual Global Equity Income Fund aims to do is to generate 1.3 times, so 130% of the income that's available from global equities. So, it's quite attractive I think.

The other interesting thing about this portfolio is the investment approach that's taken. The Global Equities' team at Old Mutual is a quantitatively-based investment team, which means that they use different tools and models, lots of quantitative numbers analysis, if you like, in order to come up with their investment ideas. There are number of advantages to that.

It allows them to really scour the investment universe. I think the universe for this team is 3,500 stocks and so it really is scouring the world, but it also takes human emotion out of the decision-making process and a lot of the work that we've done in the team really has suggested that sometimes the human factor, well, it really does expose you sometimes to making suboptimal decisions. Well, of course, quantitative process doesn't necessarily have those pitfalls.

Wall: Anthony, thank you very much.

Gillham: Thank you very much.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Jupiter Merian Glb Eq Inc (IRL) I £ Acc20.58 GBP-1.44Rating
Sequoia Economic Infrastructure Inc Ord95.33 GBP-1.72
Wells Fargo (Lux) WF-US ST HY Bd A USD A124.65 USD-0.08Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar