Conventional, but quite contrary

David Hambidge, manager of the Premier Multi Asset Distribution fund, scours the world for dividends but is shunning the US at present and finds the UK the most reliable market.

Patrick Collinson 2012 byline 160

Employment is on the up, growth is steady and political uncertainty is now over following Obama’s re-election. What’s not to like about America? Everything, says David Hambidge, manager of Premier’s Multi Asset range of funds.

Hambidge has the world to choose from. His flagship fund, Multi Asset Distribution, is a fund of funds with a universal mandate to search out income from equities, bonds, properties and alternative investments, from anywhere across the globe. And given that the US is the world’s biggest market, it’s interesting that Hambidge is out of it altogether.

“I have nothing in the US as it’s looking like the most expensive of the major markets. I also find that US active funds are much less able to outperform than European active funds. I think it has something to do with the depth of research in the US compared to the lack of research in areas of the European market.”

Neither is he that attracted to emerging markets, despite the growing number of Asian Income fund launches. “I have some modest exposure, such as Prusik, but the reality is that the UK remains by far and away the most reliable place for income investors. In Asia, we don’t know that if things get tough, whether they will turn the dividend tap off. In the UK, they don’t turn the tap off.”

That said, Prusik Asian Equity Income is one of those ‘hidden gems’ that fund-of-fund managers love to uncover. The London and Singapore-based boutique had a lacklustre 2011 but 2012 has been spectacular. The hedged GBP class of units is up 36.9 per cent over the past year, compared with a 7.8 per cent gain for the sector.

Hambidge himself has had a great three years, even if his five year numbers are not yet up to scratch (he promises they will be, soon). Premier Multi Asset Distribution is ahead 24.6 per cent over the past three years, compared with a 17.2 per cent gain for the sector.

Hambidge is probably one of the longest-serving fund of fund managers in the business. He has been with Premier since 1987 and was part of the team that set up the fund-of-fund business in 1995. During his time at Premier, its funds under management have rocketed from £30m to £2bn.

His approach to obtaining income for investors is conventional even if most of his positions are contrarian. “This may sound obvious, but if you are managing for income, then your focus has to be on income. If you get that right, then the capital will look after itself.” It sounds like a truism until he points out that most equity income funds are focused on growth, not income.

The financial crisis “has thrown pretty much everything at us,” says Hambidge, so he takes great pride that during that period he has increased the distribution to investors by 19 per cent. And he believes that the search for income is going to become ever more central for financial advisers and their clients.

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“There’s no doubt that we will all be living longer, and working longer. We’re not going to be paid state pensions until much later, and we are going to have to save more and live off those savings for longer.” Meanwhile, he reckons that given the long-term prospects for low growth in the UK economy, interest rates will remain low, giving cash holders poor returns.

“The baby boomer bulge is hitting retirement and we wouldn’t be surprised to see the prices of income-producing assets bid up by strong demand, just as house prices were when the boomers needed these,” he adds

Iinvestors will cope by holding equity for longer than they have in the past – and possibly well into retirement. But it’s crucial to get the mix right. Hambidge is hardly advocating we all hold 100 per cent equity portfolios into our 70s, but neither does he think that government bonds are going to be our friends either.

Currently he holds 45 per cent of the fund in equity (UK and global) and 27 per cent in corporate bonds. The UK portion is dominated by Schroder Income Maximiser, Psigma Income, Rathbone Income, Standard Life UK Equity Income and Neptune Income.

He deliberately chooses income managers with conflicting styles – so he might see Bill Mott’s Psigma fund retreating while the Schroder fund is advancing, and vice versa. What he doesn’t do is run winners. When a fund manager outperforms, he clips his holdings. It comes from a fundamental belief that no fund manager outperforms all the time.

Hambidge finds some of the best value opportunities right now in the UK smaller companies sector, where he holds funds from Aberforth and Chelverton.

His corporate bond funds are the “second tier” funds that are off the radar of most retail investors, such as those from Twenty Four Asset Management, a specialist fixed-income boutique only founded four years ago.

But bonds and equities make up only three quarters of this fund. The ‘other’ bit is largely uncorrelated investments, but if you’re expecting exotic holdings in soy bean futures, think again. Mostly it’s commercial property, but not the usual City office towers.

If you pop into your GP surgery and it’s in a swanky new building, it’s probably got the backing of Medicx, which develops and manages healthcare buildings for GPs. “You get an asset-backed fund with a 6.5 per cent yield and a growing distribution,” says Hambidge.

But other infrastructure-style plays, such as HICL, no longer interest Hambidge. It’s a crowded space with a lot of assets priced on the basis of ultra low-interest rates. Who knows, really, what’s going to happen to interest rates, says Hambidge. The reality is that the forseeable future is about 18 months, he says with the knowledge and experience of someone who has looked after investments for three decades.

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Patrick Collinson is the Guardian’s personal finance editor