My Asset Allocation

Some 12 months ago I was asked to put together a £200,000 portfolio for a low-risk investor seeking income.
Bearing in mind that the investor was risk-averse, I decided to put 25% of the portfolio (£50,000) into a Pinnacle Insurance Guaranteed Annual Income Bond. This would provide a fixed annual income with a guaranteed return of capital at the end of the term. Over the 12 months, the income produced was £1,740 net of basic-rate tax. The capital value remained at £50,000.
For the balance of the portfolio, I looked for investments that would produce a decent level of income without too much risk to capital. Over the 12-month period, I have only partially succeeded in achieving this objective.
I have always had a very high regard for the investment team at Artemis and that is why I chose to put part of the portfolio (£25,000) into its ABN Amro High Income fund (now Artemis High Income). My faith has been rewarded. The initial investment of £25,000 would have grown to £25,895 after taking income of £1,638.
The fund managers at M&G are high on my list of favourites, so I decided to put £50,000 into its Gilt & Fixed Interest fund. Although this produced a decent income of £1,893, the capital value would have dropped to £47,484.
I felt that part of the portfolio should be in a gilt fund, so selected the Dresdner RCM Gilt Yield fund (now Allianz Dresdner Gilt Yield). I have always felt that the team running this fund had the expertise to produce what I wanted. It did insofar as income is concerned, producing £2,037. Unfortunately, the capital would have dropped to £45,336.
Much to my surprise, the most disappointing performer was the Old Mutual Corporate Bond fund, which has always been on my preferred list. My investment of £25,000 would have produced only £898 income, coupled with a drop in capital to £22,727.
Overall, the income received from the portfolio would have been £8,206 net (4.1% pa). The capital value would have been reduced to £191,442.
On the face of it, not a very inspiring portfolio. But it must be borne in mind that the level of income achieved is quite respectable, taking into account the low-interest environment that this period covered. Although there has been some capital depreciation, 12 months is simply not long enough to judge the success or otherwise of such a portfolio.
So would I change the portfolio now? The investment with Pinnacle Insurance cannot be cashed in early, as to do so would mean losing capital. The Artemis High Income fund has come up to expectations, so I would stay with that. The M&G fund should in the medium to long term continue to produce a reasonable level of income and replace the loss of capital (and even achieve some capital appreciation).
I might well consider coming out of the Allianz Dresdner fund and, in its place, going into a corporate bond fund containing a high level of investment-grade bonds. This should produce the income with not too much risk to capital.
As far as the Old Mutual Corporate Bond fund is concerned, I would give it another 12 months to see if it can get the loss of capital restored and produce a respectable level of income. If it cannot do both, then I would look elsewhere for that part of the portfolio.