Healthy, wealthy and Wise

Occupying the top of the IMA Flexible sector, the TB Wise Investment and Income funds are both performing well despite having only a marginal crossover of holdings

FS Adam Lewis 160 byline

While the TB Wise Investment and Income funds follow two very different investment strategies, their manager Tony Yarrow has successfully placed them in first and second places of the funds of funds in the IMA Flexible sector over one year to 18 January, according to Morningstar.

Yarrow founded Wise Investments in 1992 to provide investment advice and fund management to private clients. TB Wise Investment, a multi asset growth fund of funds, was launched in April 2004, while TB Wise Income, a high-income oriented fund of funds, was launched in October 2005.

Compared with the sector average return of 10.78 per cent, TB Wise Investment returned 19.84 per cent over one year, while TB Wise Income rose 17.65 per cent.

The funds have also performed strongly over three years, ranking second and third respectively out of 58 funds of funds in the peer group.

So how has Yarrow managed to position both a growth and income strategy at the top of the rankings? The first thing to note is that despite their similar returns over the last year, there is only a 5 per cent crossover of holdings in the two portfolios, indicating how much their strategies differ.

FS 28Jan Fofs

Yarrow says: “While both have done well over one and three years there have been periods during this time when they have performed very differently. For example, Wise Investment has had the stronger start to this year, aided by market conditions and greater interest in investment trusts.”

The rise in demand for investment trusts is important as TB Wise Investment currently has 70 per cent held in closed-ended funds, with the balance of 30 per cent held in Oeics. By holding investment trusts Yarrow says he can, for example, invest in areas such as private equity and gain access to managers that he could not in unit trusts.

He says: “There will be times when I am rewarded for holding investment trusts and times when I am not.

“The key is being flexible and I can change the weighting between the two depending on the opportunities in the market.”

In TB Wise Income the investment trust weighting is only 20 per cent, with 35 per cent held in direct investment and the rest in unit trusts. The Income fund invests in three asset classes- property, fixed income, equities. Being in the Flexible sector means that there is no limit on the amount of cash the manager can hold when other assets are unattractively valued. At present, the split is 20 per cent property, 12 per cent fixed income, 0.5 per cent cash and the rest in equities.

FS 28Jan Fofs

“After a torrid time between 2008 and March 2009, the Income fund evolved into a high income mandate,” says Yarrow.

“We saw value in areas of the market that other people had given up on, for example financials. As the market gradually normalised Wise Income has made good capital returns and from a yield of 3.8 per cent at launch the yield on the fund is now 5.6 per cent.”

Yarrow would like to add more investment trusts into the Income portfolio but many of those vehicles he likes, for example, City of London, Murray Income and Temple Bar in the UK equity income space, are all trading on premiums to net asset value. Instead he prefers the areas that are out of favour, that is, those on large discounts to NAV.

Despite their differences at a portfolio level, Yarrow says both funds were designed as a one-stop shop, one for income and the other for growth investors. At present, TB Wise Investment has asset under management of £28.5m, while TB Wise Income houses AUM of £25.3m. While Yarrow would be happy for the fund sizes to grow, he does not want money to come in just because of the recent performance.

“We want people to get to know us and be in the fund for the long term because there will be times when performance will not be as good. The good investors are the ones who understand what we do and are prepared to stick with us during the difficult times.”