More UK exposure, higher yielding bonds, a manager with a bright future and a pure play on the music industry are among the new fund additions to the MI Hawksmoor Distribution portfolio, according to managers Daniel Lockyer and Ben Conway.
Running an exceedingly “cautious” portfolio FE fundinfo Alpha Managers Daniel Lockyer and Ben Conway said that coming into 2020 one of the changes to the portfolio is the building up of their UK equity exposure following the Conservative party general election victory.
“There’s some good value in the UK,” Lockyer said, particularly in the domestic, small-cap space which really came through strongly in the post-election ‘Boris bounce’ late last year.
“These parts of the market were very cheap and we felt comfortable in owing these, even if there isn’t a catalyst in the short term, because value will out eventually.”
However, these aren’t the only changes to the £188.7m, income-focused Hawksmoor Distribution fund that the FE fundinfo Alpha Managers have made.
Below, Trustnet considers the four funds that have been added to the portfolio for 2020.
TM RWC UK Equity Income
First up is the £263.4m RWC UK Equity Income fund managed by Ian Lance and Nick Purves, both of whom have managed the fund since its launch in October 2018.
Lockyer and Conway said that they had followed the managers since they were at Schroders, managing the Schroder Income fund under the same “value-oriented style”.
“While their style has long been out of favour, valuations of stocks in their portfolio are now cheap both in absolute and relative terms,” they said.
“We feel the portfolio will deliver an excellent income to our Distribution portfolio, and produce very acceptable total returns.
“Should it outperform the UK market, that will be a bonus, but what most concerns us is expected total return for the risk we are taking.”
Performance of fund vs benchmark & sector since launch
Source: FE Analytics
RWC UK Equity Income has made a total return of 2.00 per cent since launch, underperforming the FTSE All Share’s 8.90 per cent gain and the IA UK Equity Income peer group’s 7.71 per cent return.
The fund has an ongoing charges figure (OCF) of 0.80 per cent and a yield of 4 per cent.
Man GLG High Yield Opportunities
Next is another recently launched fund, the £31.8m Man GLG High Yield Opportunities fund managed by Michael Scott, who previously ran a similar fund strategy also at Schroders.
This was recently flagged by FundCalibre research director, Juliet Schooling Latter as a fund with a new manager worth keeping an eye on.
The Hawksmoor managers said that they had been impressed by Scott’s long track record and fund that is “designed to maximise the opportunity to generate alpha from high yield bonds”.
“We are not making a call on high yield bonds, which, given where we are in the credit cycle, are a small part of our portfolios, but on the ability of Mike to produce good returns,” they said.
“The portfolio has a yield to maturity of 8.4 per cent and a running yield of circa 6 per cent. This results from a portfolio that makes the most of the current diverse opportunity set available in high yield credit.
Lockyer and Conway added: “This is not a fund we regard as particularly low risk and that is reflected in its low weighting in the portfolio.”
Since launch it has made 9.70 per cent since its launch in June last year, outperforming the IA Sterling High Yield sector average (5.65 per cent).
Performance of fund vs sector since launch
Source: FE Analytics
The fund has a yield of 9.54 per cent and has an OCF of 0.75 per cent.
Barings Global Dividend Champions
A “relatively unknown fund,” according to the Hawksmoor pair, the $44.8m Barings Global Dividend Champions is run by Darryl Lucas a manager both expect to have a “bright future”. 
Lucas joined Barings in January 2016 from Sarasin & Partners where he was head of equity income, with the Barings fund being launched last September.
“This Barings fund is his opportunity to run a fund at a well-established house exactly how he’d like to,” Conway (pictured) explained. “This is a small fund run by a talented manager with a philosophy close to how we run multi-asset portfolios, that is a very promising alternative to some of the larger better-known peers in this space.
“The mandate is nothing too ground-breaking: it is an attempt to generate good total returns from a portfolio of high quality companies with a more than an eye on downside risk: the aim is to outperform global equities thanks to lower drawdowns.”
Performance of fund vs benchmark & sector since launch
Source: FE Analytics
The fund has made returns of 37.50 per cent since launch, outperforming the IA Global peer group (37.12 per cent) but underperforming the MSCI World benchmark (40.99 per cent). It has an OCF of 0.85 per cent.
Hipgnosis Songs
The final addition to the portfolio is a closed-ended alternative strategy, the £1.3bn Hipgnosis Songs, “an illustration of value within alternative parts of the market that’s going to be really important for 2020”.
As multi-asset investors, Conway said that they were able to look beyond bonds and equities for less liquid assets he can use to improve the risk-return profile of the funds which are still good value.
Having followed the trust since IPO in 2018, the Hawksmoor managers added the trust to all three of their funds – MA Hawksmoor Global Opportunities and MI Hawksmoor Vanbrugh – once execution risk “actually buying the song catalogues from artists” had subsided.
Although a more unusual asset class the pair said that despite concerns “there is no doubting the appeal of this asset class” regarding it as a “healthy income stream completely unrelated to the trials and tribulations of financial markets, and near total immunity from the ebbs and flows of the macroeconomy”.
Performance of trust since IPO
Source: FE Analytics
The trust is currently running at a 10.9 per cent premium to net asset value (NAV) and is not geared. It is the only fund in the IT Royalties sector and has made 10.63 per cent total return since launch. It has ongoing charges of 1.53 per cent and a yield of 4.6 per cent.