Premier Asset Management The Income conundrum January 2015 For professional adviser use only and not for distribution to retail investors
The income conundrum Over 80% of the World s assets will be owned by baby boomers in the next 5 years Record low interest rates At historic lows since March 2009 Unlikely to change in the near term Changing demographics More people retiring in the UK Likely to be retired for longer How to fund those extra years? Increasing care costs 6,000 5,000 4,000 3,000 2,000 1,000 0 500,000 400,000 300,000 200,000 100,000 0 Returns on 100,000 investment from cash account, based on Bank of England base rate Source: Bank of England Jan'07 Jan'08 Jan'09 Jan'10 Jan'11 Jan'12 Jan'13 Jan'14 No. of people in the UK aged 90+ Source: Office of National Statistics* 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 Years 2 *Data as at 31.03.2013.
How can your clients generate an income without eroding their capital? The benefit of natural income means that income is derived from the income-yielding assets, rather than unit encashment MARKETS RISE Income remains stable Year 1 Year 2: markets rise Share price 1 1.20 No. of 100,000 100,000 Capital value 100,000 120,000 Dividend per share 5p 5p Yield 5%p.a. 4.2%p.a. Income 5,000 5,000 MARKETS FALL Income remains stable Year 1 Year 2: markets fall Share price 1 0.80 No. of 100,000 100,000 Capital value 100,000 80,000 Dividend per share 5p 5p Yield 5%p.a. 6.3%p.a. Income 5,000 5,000 3 For illustrative purposes only.
Unit Encashment vs Natural Income- an illustration Basis of illustration; The IMA Mixed Investment 40%-85% sector has been used in this example to represent a typical balanced portfolio of mixed assets Premier Multi-Asset Distribution Fund pays quarterly dividends from natural income Illustration will not take into account the tax position of individual clients which will vary Sector performance includes dividends reinvested; Premier Multi-Asset Distribution Fund performance assumes dividends paid out For illustrative purposes, the unit encashment is based on regular fixed withdrawal of 1,250 per quarter which equates to a yield of 5%pa on the initial investment The different time periods have been selected to show how results would compare in different market conditions Illustration 1: Starting in a rising market Initial investment: 100,000, (01 April 2009 30 June 2014) Income via: Unit Encashment Illustration 2: Starting in a falling market Initial investment: 100,000, (01 April 2000 30 June 2014) Income via: Unit Encashment IMA Mixed Investment 40% - 85% sector Withdrawn Natural Income Premier Multi-Asset Distribution Fund Income 26,250-18.34% 141,981 29,092 0.00% 158,272 IMA Mixed Investment 40% - 85% sector Withdrawn 71,250-68.48% 49,877 Natural Income Premier Multi-Asset Distribution Fund Income 75,473 0.00% 106,794 4 Source of data: FE Analytics, based on a bid to bid, UK sterling basis. The information displayed is intended to demonstrate two different methods of receiving income (unit encashment vs natural income, whereby income is paid out from the underlying income producing assets, as dividends per share) and the potential impact on capital returns. The illustration has been created by Premier Asset Management using defined periods and is not indicative of how either method will perform in the future. Whilst every effort has been made to ensure the accuracy of the methodology used to create this illustration, the data should not be relied upon. This information is not a recommendation nor should it be construed as advice for investment purposes. Past performance is not a guide to future returns.
Millions ( ) Investors can benefit from a broad range of income opportunities The investment amount required to generate 10,000 annual income 2.5 2 2,000,000 1.5 1 0.5 534,759 375,940 302,115 286,944 219,780 200,000 188,679 0 Cash 10 Years gilt Open ended property fund UK equities Corporate bond fund Closed ended property fund Premier Multi- Asset Monthly Income Fund High yield bond fund 5 Source: Cash: www.bankofengland.co.uk. Gilts: Bloomberg.com. UK Equities: FTSE All-Share index. Open ended property: IMA property sector average. UK Equities: FTSE All-Share index. Corporate bond: Sterling Corporate Bond sector average. Closed ended property: AIC property sector. High yield bond: IMA sterling high yield. Data source: FE Analytics. Data to 30.11.2014.
Premier s Multi-Asset Income offerings Premier Multi-Asset Monthly Income Fund Income¹ Risk adjusted returns² Quartile ranking Growth³ Quartile ranking Yield p.a. Quartile ranking 1 yr 3 yrs 5 yrs 1 yr 3 yrs 5 yrs 5.0%p.a. paid monthly 1 1 1 1 1 1 1 Premier Multi-Asset Distribution Fund Income¹ Risk adjusted returns² Quartile ranking Growth³ Quartile ranking Yield p.a. Quartile ranking 1 yr 3 yrs 5 yrs 1 yr 3 yrs 5 yrs 4.4%p.a. paid quarterly 1 1 1 1 1 1 1 Premier Multi-Asset Growth & Income Fund Income¹ Risk adjusted returns² Quartile ranking Growth³ Quartile ranking Yield p.a. Quartile ranking 1 yr 3 yrs 5 yrs 1 yr 3 yrs 5 yrs 2.6%p.a. paid half yearly 1 1 1 1 1 1 1 6 ¹ Net of basic rate tax. The historic yield reflects distributions declared over the past 12 months as a percentage of the mid-market unit price of the fund as at 01.12.2014. The yield is not guaranteed and may fluctuate. ²Sharpe ratio is based on cumulative weekly data to 30.11.2014. ³Data to 30.11.2014, based on a bid to bid, total return, UK sterling basis. All quartile rankings sourced to FE Analytics. Quartile rankings within IMA Mixed Investment 20%-60% sector and IMA Mixed Investment 40%-85% for Premier Multi-Asset Growth & Income. Past performance is not a guide to future returns.
Premier s Multi-Asset Team 7
How we manage money Only two words to remember Outcome Value 8
Objectives, goals & actions High-Level Objective Intermediate Goal Intermediate Goal Intermediate Goal Basic Action Basic Action Basic Action Basic Action Basic Action Basic Action Basic Action Basic Action Basic Action 9
Outcome: Income Premier Multi-Asset Distribution Decent, rising income with some long-term capital growth Premier Multi-Asset Monthly Income High and regular income some long-term capital protection Premier Multi- Asset Growth & Income Long-term capital growth with a modest level of income 10
Income and price 11
Return (%) Income assets: a journey 50 40 2008 30 20 10 0-10 -20-30 -40 Jan Dec UK Equity Income High Yield Corporate Bonds Corporate Bonds Cash Gilts Gold 12 Source: FE Analytics, based on a bid to bid, total return, UK sterling basis. Past performance is not a guide to future returns.
Return (%) Income assets: a journey 120 100 80 60 40 20 0-20 2009 2010 2011 2012 2013 2014 UK Equity Income High Yield Corporate Bonds Corporate Bonds Cash Gilts Gold 13 Source: FE Analytics, based on a bid to bid, total return, UK sterling basis. Past performance is not a guide to future returns, data from 31.12.2008 to 30.11.2014.
Net pence per share Income: What to expect from a good performing fund Premier Multi-Asset Distribution Fund Discrete income payments 6 23% Growth 5 4 3 2 1 0 2003 / 04 2004 / 05 2005 / 06 2006 / 07 2007 / 08 2008 / 09 2009 / 10 2010 / 11 2011 / 12 2012 / 13 2013 / 14 Financial year ending (28 February) 14 Future income payments are not guaranteed. Past performance is not a guide to future returns.
Value 15
The perils of macro management 120 The Oil Price 110 100 90 80 70 60 50 January December Oil price Brent Crude Market Price, USD, Pre-Tax 16 Source: Morningstar, data from 01.01.2014 to 18.12.2014..
The two principles Outcome Value 17
Multi-Asset Distribution Fund Alternatives assets CATCo Reinsurance Opportunities (1.4%) International Public Partnership (0.3%) Property SWIP Property Trust (3.1%) Standard Life UK Property (3.0%) Threadneedle UK Property Trust (3.0%) Henderson UK Property (3.0%) AEW Core Property Income (1.7%) Picton Property Income (1.5%) Schroder Real Estate Inv Trust (1.4%) Medic X (1.3%) Assura Group (1.1%) Target Healthcare (0.9%) Bonds-floating debt rate M&G European Loans (2.3%) Corporate bonds Investment grade & high yield Pimco Select UK Income Bond (4.8%) Hermes Multi-Strategy Credit (4.8%) Royal London Corporate Bond (3.1%) Baillie Gifford Corporate Bond (1.7%) Property 20.0% Floating Debt Rate Bonds 2.3% Alternative Assets 1.7% High Yield Bonds 4.9% Investment Grade Corporate Bonds 9.4% Cash 5.5% Specialist Bonds 12.2% UK Equities 30.0% European ex-uk Equities 4.1% Japanese Equities 3.8% Emerging Markets Equities 3.7% Asian ex-japan Equities 2.4% UK equities Fidelity Moneybuilder Dividend (4.9%) Standard Life UK Equity High Income (4.7%) Rathbone Income (4.7%) Franklin UK Equity Income (4.4%) Schroder Income (3.8%) Miton UK Multi Cap Income (2.9%) S&W UK Equity Income (2.5%) Aberforth UK Smaller Companies (2.1%) Emerging markets Charlemagne Magna Emerging Market Dividend (3.7%) Japan equities Coupland Cardiff Japan Income & Growth (3.8%) Europe ex-uk equities BlackRock European Income (4.1%) Asia Pacific ex-japan equities Prusik Asian Equity Income (2.4%) Bonds-specialist Wyetree Yield Distribution Fund (2.1%) TwentyFour Income Fund (1.7%) GCP Infrastructure Income (1.7%) Real Estate Credit Investments (1.4%) Starwood European Real Estate Finance (1.2%) Doric Nimrod Air 2 (1.2%) Longbow Senior Secured UK Property (1.0%) CVC Credit Partners European Opportunities (1.0%) Doric Nimrod Air 3 (0.8%) 18 Data as at 30.11.2014. Please note that the asset allocation may be above or below 100% due to rounding.
Summary It s a great time to be a financial adviser! People are living longer which means more emphasis is being put on income solutions that can offer long term potential to meet their needs Unit encashment vs natural income is a very important, yet often overlooked, consideration when constructing portfolios for income Premier Asset Management has a suite of income solutions 19
Appendices 1. Unit encashment vs natural income illustration (IMA Mixed Investment 20%-60% Shares sector) 2. Unit encashment vs natural income illustration (IMA Flexible sector) 20
Unit Encashment vs Natural Income- an illustration Basis of illustration; The IMA Mixed Investment 20% - 60% sector has been used in this example as it is the sector in which the Premier Multi-Asset Distribution Fund resides Premier Multi-Asset Distribution Fund pays quarterly dividends from natural income Illustration will not take into account the tax position of individual clients which will vary Sector performance includes dividends reinvested; Premier Multi-Asset Distribution Fund performance assumes dividends paid out For illustrative purposes, the unit encashment is based on regular fixed withdrawal of 1,250 per quarter which equates to a yield of 5%pa on the initial investment The different time periods have been selected to show how results would compare in different market conditions Illustration 1: Starting in a rising market Initial investment: 100,000, (01 April 2009 30 June 2014) Income via: Unit Encashment IMA Mixed Investment 20% - 60% sector Withdrawn 26,250-19.52% 126,571 Natural Income Premier Multi-Asset Distribution Fund Income 29,092 0.00% 158,272 Illustration 2: Starting in a falling market Initial investment: 100,000, (01 April 2000 30 June 2014) Income via: Unit Encashment IMA Mixed Investment 20% - 60% sector Withdrawn 71,250-61.10% 63,753 Natural Income Premier Multi-Asset Distribution Fund Income 75,473 0.00% 106,794 21 Source of data: FE Analytics, based on a bid to bid, UK sterling basis. The information displayed is intended to demonstrate two different methods of receiving income (unit encashment vs natural income, whereby income is paid out from the underlying income producing assets, as dividends per share) and the potential impact on capital returns. The illustration has been created by Premier Asset Management using defined periods and is not indicative of how either method will perform in the future. Whilst every effort has been made to ensure the accuracy of the methodology used to create this illustration, the data should not be relied upon. This information is not a recommendation nor should it be construed as advice for investment purposes. Past performance is not a guide to future returns.
Unit Encashment vs Natural Income- an illustration Basis of illustration; The IMA Flexible sector has been used in this example to represent a managed fund, with broad investment parameters, and typically with a higher risk / return profile than the Premier fund Premier Multi-Asset Distribution Fund pays quarterly dividends from natural income Illustration will not take into account the tax position of individual clients which will vary Sector performance includes dividends reinvested; Premier Multi-Asset Distribution Fund performance assumes dividends paid out For illustrative purposes, the unit encashment is based on regular fixed withdrawal of 1,250 per quarter which equates to a yield of 5%pa on the initial investment The different time periods have been selected to show how results would compare in different market conditions Illustration 1: Starting in a rising market Initial investment: 100,000, (01 April 2009 30 June 2014) Income via: Unit Encashment IMA Flexible Investment sector Withdrawn 26,250-17.91% 144,801 Natural Income Premier Multi-Asset Distribution Fund Income 29,092 0.00% 158,272 Illustration 2: Starting in a falling market Initial investment: 100,000, (01 April 2000 30 June 2014) Income via: Unit Encashment IMA Flexible Investment sector Withdrawn 71,250-72.21% 41,398 Natural Income Premier Multi-Asset Distribution Fund Income 75,473 0.00% 106,794 22 Source of data: FE Analytics, based on a bid to bid, UK sterling basis. The information displayed is intended to demonstrate two different methods of receiving income (unit encashment vs natural income, whereby income is paid out from the underlying income producing assets, as dividends per share) and the potential impact on capital returns. The illustration has been created by Premier Asset Management using defined periods and is not indicative of how either method will perform in the future. Whilst every effort has been made to ensure the accuracy of the methodology used to create this illustration, the data should not be relied upon. This information is not a recommendation nor should it be construed as advice for investment purposes. Past performance is not a guide to future returns.
Important information Risk of investments Past performance is not a guide to the future. The price of and income from them may go down as well as up and you may get back less than you invested. Movements in exchange rates may also affect the value of the investment. Please remember that these investments are typically intended as either medium or long term investments. Reference to any particular stock does not constitute a recommendation to buy or sell the stock. Disclaimer This presentation is directed only at authorised financial advisers and professional investors. The information given and opinions expressed are subject to change and should not be interpreted as investment advice. Persons who do not have professional experience in matters relating to investments should not rely on the content of this presentation. All data sourced to Premier unless otherwise stated. Whilst every effort has been made to ensure the accuracy of the information contained within this presentation, we regret that we cannot accept responsibility for any omissions or errors. For your protection, calls may be monitored and recorded for training and quality assurance purposes. Source & Copyright: CITYWIRE. David Hambidge is AA rated by Citywire for his 3 year risk adjusted performance for the period 30.11.11 30.11.14. Citywire information may not be copied and Citywire excludes any liability arising out of its use. Based on C Share Class, Morningstar Ratings do not constitute investment advice. Copyright 2013 Morningstar. All Rights Reserved. The fund and fund manager awards and ratings are awarded by independent companies that do not have an association or affiliation with Premier Asset Management or its subsidiaries. The methodology and calculations used by these companies are not verified by Premier Asset Management and we are therefore unable to accept responsibility for their accuracy. Ratings and awards should not be relied upon for making any investment decision, nor are they an indication, promise or guarantee of future performance of a fund or fund manager. Issued by Premier Asset Management. Premier Asset Management is the marketing group for Premier Fund Managers Ltd and Premier Portfolio Managers Ltd, who are authorised and regulated by the Financial Conduct Authority of 25 The North Colonnade, Canary Wharf, London E14 5HS. 2312149983 23