The search for yield is becoming riskier as central banks edge ever closer to normalising interest rates.
Rathbones head of multi asset David Coombs says he has rummaged around to find eclectic investments he believes offer a solution for his £60.2m Multi Asset Total Return Portfolio fund.
All these ideas have a similar theme, he says.
“It’s looking for pockets of yield. They may not have the highest yield you can get, but they’re not exposed to a reappraisal of interest rates.”
Muzinich Global Tactical Credit
The £191.6m Muzinich Global Tactical Credit fund is a completely unconstrained fixed income fund that has the ability to hedge out any risk it likes, including currency and interest rates.
Run by a New York-based manager, the Ireland-domiciled fund is relatively new to the UK retail market.
“It held up really well recently when the high yield sector sold off,” Coombs says.
“We’ve been adding to it since the beginning of the year. It’s trying to find yield with hopefully less volatility than we see in traditional corporate bond funds.”
It now makes up 2.8 per cent of the Multi Asset Total Return portfolio.
Santander IPD Index linked note
The Santander linked note to the IPD property index yields about 6 per cent and gives great exposure to prime property without the hassle, Coombs says.
Tracking Investment Property Databank futures, it is a “pure play” on commercial property without the stamp duty, he says.
“Most retail funds would not buy prime, because there’s not enough stock and the yields are too low,” he explains.
“But that’s what gives you the diversification; second tier gives you cyclical exposure – they are far more correlated to equities.”
His fund has taken a 1.6 per cent position in the security.
Tritax Big Box Reit
The closed-ended Tritax Big Box Reit offers roughly 5.5 per cent yield from blue chip companies consolidating diffused distribution networks into gargantuan hubs.
“There’s low credit risk in the fund. And the fitting out is often a higher cost than the building itself so they are sticky tenants,” Coombs says.
There are no unlet properties in the space and the move to centralised distribution models is continuing, he adds.
SQN Asset Financing
Guernsey-registered SQN Asset Financing makes up 1.4 per cent of the multi asset fund’s portfolio and offers a yield of 7 per cent.
Leasing commercial equipment that is not reliant on selling the assets to make decent returns, any cash on disposal is considered a bonus rather than necessity, Coombs says.
The investment company does not lease aircraft or fleets of cars or photocopiers. However, it does lease baggage vehicles to airports and small-scale industrial equipment such as bottling lines.
ECM Dynamic Credit
The ECM Dynamic Credit fund swaps out duration and aims to make 4 per cent after fees annually solely from credit risk.
“We’re not taking much credit risk, but where we are we want to take the spread risk. We don’t want to take the interest rate risk,” Coombs says.
ECM is a Wells Fargo subsidiary that specialises in credit investment.