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UK: Suitable for retail and professional clients

Monthly Income Portfolios Diversified solutions to help deliver and sustain income

2 Monthly Income Portfolios

ContentsInvesting to meet your income needs 4

Sourcing a sustainable income 6

The benefits of reinvesting income 7

How we invest and manage your money 8

Risk-targeted portfolios to match your needs 10

Summary 12

The investment team 13

Quilter Investors 3


Investing to meet your income needsIn a constantly evolving landscape where macroeconomic and geopolitical pressures can weigh on markets and affect business outlooks, investors need to start looking beyond the traditional income sources.

The Pension Freedoms introduced in 2015 mean that people can adopt a more phased approach to their retirement. The flexibility of being able to stay invested yet withdraw an income has changed the game for investors, but not necessarily their mindset.

When building up your investment pot, having a reasonably long time horizon before you need to use the money means if markets are volatile, any losses can potentially be regained over time.

But in retirement, it is likely you will spend more than you earn from any income, which makes your investment pot more vulnerable to dips in the market. Therefore achieving a steady sustainable income from your investments can help you avoid dipping into the underlying pot of money, which can quickly disappear.

Investors need to consider how best to achieve a sustainable income. Many traditional investments are now producing lower levels of income and given the low interest rate environment, holding cash may not necessarily be the best option.

Choosing the right solution

The Monthly Income portfolio managers search for the best income opportunities across all asset classes, regions, sectors, styles and investment structures to deliver a combination of income and capital growth within a risk-targeted framework.

To deliver on these objectives the team looks across all investment universes to find the most suitable investments. Whether that is an actively managed fund, an enhanced passive strategy also known as smart beta, which focus on a specific set of drivers of investments returns such as dividend yields and high-quality companies, or alternative investments that may help to offset inflation risk.

The team draw on their own expertise and insight, as well as in-depth analysis, to establish trends and locate where the best opportunities might lie, and how best to take advantage of them.

Distinguishing features:The Quilter Investors Monthly Income Portfolios have been designed in collaboration with financial advisers, research agencies and customers.

Actively managed to ensure the portfolios maintain their risk-targets while delivering a sustainable income stream. This is achieved through a core of active investments that form the heart of the portfolios. Passive strategies, including smart beta, which focus on a particular investment style or strategy, are then used around them to provide additional and differentiated exposure to income opportunities.

Flexible and diversified across asset classes, styles, sectors, regions and investment vehicles.

Risk-targeted portfolios set at two different risk levels, with differing income and growth profiles, to enable you to choose the right solution for your needs.

Smoothed monthly yield is targeted for those seeking an even level of income payments over the year. This means we aim to even out some of the variability from income sources such as dividend payments to try and avoid large differentials in the monthly payments paid to investors.

The Monthly Income portfolio managers search for the best income opportunities across all asset classes, regions, sectors, styles, and investment structures.

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Sourcing a sustainable incomeThe ‘hunt for yield’ has been a consistent theme for investment markets for many years. Using traditional sources of income in isolation can no longer be relied on - the hunting ground has become wider and more complex.

Source: FactSet financial data and analytics/MSCI*.

Hunting for income: Investors are experiencing near historically low yields from many traditional sources of income.

Current yieldHistoric highest/lowest yield (20 years to 29 May 20)

0123456789

Yiel

d (%

)

Cash

UK 10 year Gilts

Long-dated UK

Gilts >15yrs

US equities

Investment g

rade

corporate bonds

European equities

UK equities

Infrastructure

Property

Expanding the search for income

In the wake of the 2008 global financial crisis, the large scale intervention by monetary authorities such as central banks, meant investment income became much harder to find for today’s investors.

This has been further heightened by the impact of the global coronavirus pandemic in 2020, which witnessed the implementation of unprecedented amounts of monetary and fiscal stimulus from countries around the world in an attempt to save companies, employees and economies. In such uncertain times, with many traditional dividend paying sectors cutting or suspending their payouts, there is now even more emphasis on the need to find sustainable income streams.

Traditional sources of investment income, such as government bonds or interest on cash, are no longer generating the income they once did.

For some investors this has led them towards larger holdings in riskier assets to achieve a desired level of income. With that comes the risk of exposure during times of market volatility, which can impact both the level of regular income and the sustainability of invested capital.

Using assets with potentially higher risk and yield can be helpful within a diversified portfolio, but they require careful daily management to ensure they remain in line with an investor’s overall appetite to risk.

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While some investors may want to take their income as it arrives, for those not yet reliant on these monthly income payments, the reinvestment of these dividends can reap greater rewards.

Also known as compounding, by reinvesting the income from your investments, you can invest further, which has the potential to grow in value – so your returns are earning returns and this builds up more momentum as you continue to reinvest.

For example, figures show the total return of the FTSE All-Share from 1985 to May 2020, excluding dividends was 493%. But if you include the effects of dividend reinvestment the total cumulative return jumps to an impressive 1752%, with reinvested dividends accounting for around 72% of the total return.

The benefits of reinvesting income

Source: FactSet as at 29/05/2020.

Traditional sources of investment income, such as government bonds, are no longer providing sufficient income.

FTSE All-Share (Price) FTSE All-Share (Dividends reinvested)

Dividend re-investment achieves a meaningful total return

0

500

1,000

1,500

2,000

2,500

Tota

l ret

urn

(%)


How we invest and manage your moneyThe Monthly Income Portfolios use a balance of investment styles and instruments, carefully tilting and timing opportunities to meet differing income and growth needs.

Asset allocation

Having exposure to the right asset classes and geographies at the right time is central to how many active managers build wealth for their investors and it is even more important in the search for yield. As markets are constantly changing, the mix of assets within each portfolio needs to be dynamic to ensure the portfolios do not become overly concentrated in one area and can adapt to changes in the market.

The Monthly Income portfolio managers adopt a pragmatic approach to managing the portfolios and as such will adjust exposures using the most efficient investment instruments to access an opportunity, all the while ensuring the portfolio remains within its risk-targeted framework.

Active core approach

In selecting the most effective investments, the Monthly Income portfolio managers can choose from active investments such as funds, investment trusts and alternative investments such as infrastructure, or passive or smart beta strategies, which track a market index.

Inside the Quilter Investors Monthly Income Portfolios, active holdings form the core part of the portfolios, and passive and smart beta strategies are then used to tilt the portfolios towards the best value opportunities. It is this ‘active core’ approach that enables the portfolios to deliver value to investors, while adhering to their risk framework without foregoing any investment opportunities.

Natural income

The portfolios place a focus on investments that produce a ‘natural’ income, for example income generated by a dividend payment on an equity or interest paid on a bond. This can be considered a more sustainable strategy compared with an ‘encashment’ approach, where units or shares in a traditional portfolio are sold to generate income. Encashment can cause problems when markets are more volatile and can result in erosion of the underlying capital investment if investors are forced to sell their investments when markets are at a low and the price of them has fallen.

Active core with passive and smart beta

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Choosing the right mix

Quilter Investors has extensive relationships with the industry’s leading investment professionals, enabling the team to access strategies from fund management groups worldwide.

With so much choice at their fingertips, the Monthly Income portfolio managers draw on their own expertise and that of their research analysts who drill down into an underlying fund manager’s strategy, its philosophy, performance and process to ensure it’s the right fit for the portfolios at the right risk level.

Different types of investments

Open-ended funds and investment trusts.

Segregated mandates, an investment that is run by an external manager specifically for Quilter Investors.

Smart beta strategies and other passive instruments such as exchange-traded funds (ETFs), investments that track the price of a certain asset or market.

Alternatives, such as infrastructure or renewables.

Ongoing monitoring and oversight

The composition of each portfolio is carefully monitored on an ongoing basis.

Should the market environment or an underlying fund manager experience a change in circumstances, the Monthly Income portfolio managers are ready to make any necessary changes. They adjust the portfolios as needed to ensure your investments remain on track and in line with the targeted risk levels, in a cost-effective manner.

In addition, the portfolios are also subject to oversight by Quilter Investors’ Investment Oversight Committee. The committee is comprised of senior personnel who on a quarterly basis, review performance of the portfolios and question the decisions taken by managers. On a daily basis, the portfolios are assessed in order to monitor liquidity levels, frequency of trades and the number of positions held, against the investment guidelines.

USGovernment

EuropeanEquity

Pac. ExJapan Equity

EmergingMarket Debt

UK Equity

UK Corporate

UKGovernment

UK Fixed Income Property

Renewables Smart-Beta InfrastructureAlternative

FixedIncome

Emerging MarketEquity

US Corporate

Japan Equity

Global HighYield

Global Strategic

North American

EquityAlternative

IncomeGlobalEquity

CorporateBonds

Private Equity

Traditional sources of income

Diversified sources of income


The lower risk portfolio targets a higher level of income and some capital growth, while the higher risk portfolio targets a greater total return, made up of more capital growth and less income.

Each portfolio targets a particular amount of volatility - a measure of how far the returns from an asset varies from its average over a particular period - which indicates the level of risk your investment is exposed to. In addition, the portfolios offer differing levels of income, to best fit your needs.

Smoothed monthly yield

Both portfolios adopt a policy of smoothing the monthly yield, which means that the monthly payments are fairly even over the distribution period.

Daily monitoring of forecasted income streams allows the team to get ahead of any potential variability in a particular period and adjust the portfolios as needed.

Managing risk

The Monthly Income portfolio managers regularly monitor the risk in the portfolios using modelling, analytical and income forecasting tools. This helps identify the need for any short-term tactical moves to offset volatility, or to adapt to periods when dividend income into the portfolio may be higher or lower than expected. This enables the the Monthly Income portfolio managers to plan ahead to smooth the monthly yield.

Risk-targeted portfolios to match your needsThe Monthly Income range offers the choice of two portfolios to meet different investor needs and attitude to risk.

Target volatility range1

Target volatility range1

This portfolio targets a higher level of income, with some capital growth, but at a lower risk level. A typical asset allocation might be around 45% of the portfolio held in equities and the remainder invested in fixed income instruments and alternative investments. A minimum of 35% of the portfolio is held in passive, including smart beta investment strategies.2

Quilter Investors Monthly Income Portfolio

6.5%

9.6%

9.6%

12.7%

Quilter Investors Monthly Income and Growth Portfolio

1 The volatility range is a target, based on long term actuarial assumptions and the portfolio is managed to stay within this range most of the time. The volatility range is regularly reviewed and may change from time to time due to changes in these assumptions but will remain within the limits laid out in the prospectus. 2 Typical asset allocation.

This portfolio targets a higher total return, through a higher level of risk, resulting in slightly more capital growth and a slightly lower income yield. A typical asset allocation might be around 60% of the portfolio held in equities and the remainder invested in fixed income instruments and alternative investments. A minimum of 35% of the portfolio is held in passive, including smart beta investment strategies.2

Equity Fixed Income Alternatives Cash

Equity Fixed Income Alternatives Cash

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SummaryIn an environment of varied dividend prospects combined with pension freedoms and low annuity rates, choosing the right income solution has become even more important.

Reasons to consider Quilter Investors Monthly Income Portfolios

An actively managed multi-asset approach is an attractive option for combining the varied sources of income available globally into a portfolio that can sit alongside your other investments to support your income.

An innovative approach to portfolio construction that enables the Monthly Income portfolio managers to access opportunities efficiently through the active management of smart beta, passive and active investments.

A smoothed distribution of the income paid each month over the period to avoid large differentials in the monthly payments to investors.

Sustainability of income, the portfolios place a focus on investments that produce a ‘natural’ income, for example from a dividend payment on an equity or interest paid on a bond. This can be considered a more sustainable strategy for your capital.

A risk-targeted framework which means the portfolios should carry a level of investment risk consistent with how they are described by your financial adviser, although there is no guarantee that portfolio risk will remain within the prescribed ranges.

Whether you require a regular income to meet every day needs, save for something special, or to reinvest to benefit from the compounding of returns, a risk-targeted, diversified portfolio can help meet your objectives.

As more people look to spend more of their life in ‘retirement’ than ever before, getting the right mix of investments and solutions to ensure their income lasts as long as they do, and even beyond, has never been more important.

Monthly Income portfolio managersThe Monthly Income Portfolios are run by an investment team with substantial experience in managing multi-asset funds.


Next steps Your financial adviser is responsible for understanding your specific investment objectives and attitude to risk. They will work closely with you to ascertain which Monthly Income portfolio might be appropriate for you.

If you have any further questions, please speak to your financial adviser.

Helen BradshawPortfolio managerHelen Bradshaw is a portfolio manager at Quilter Investors and manages the Monthly Income Portfolios. She has over 15 years of investment industry experience and joined Quilter Investors in January 2019 from Janus Henderson Investors, where she ran a number of multi-asset income strategies.

CJ CowanAssistant portfolio managerCJ is an assistant portfolio manager in the investment team at Quilter Investors. He joined Quilter in 2018 from Aberdeen Standard Investments where he worked on the Global Macro team, managing global government bond and global aggregate portfolios.

The investment team also includes a wealth of talent including sector analysts, quantitative specialists and research professionals.

Quilter Investors portfolio managers

Bambos HambiChief executive and chief investment officer(subject to regulatory approval)

Paul SimpsonChief executive and head of investment

Helen BradshawPortfolio manager

Stuart ClarkPortfolio manager

CJ CowanAssistant portfolio manager

Ian Jensen-Humphreys Portfolio manager

Paul CraigPortfolio manager

Hinesh PatelPortfolio manager

Rasmus SoegaardPortfolio manager

Sacha ChorleyPortfolio manager


Important informationPast performance is not a guide to future performance and may not be repeated. Investment involves risk. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. Because of this, an investor is not certain to make a profit on an investment and may lose money. Exchange rate changes may cause the value of overseas investments to rise or fall.

This communication is issued by Quilter Investors Limited (“Quilter Investors”), Senator House, 85 Queen Victoria Street, London, EC4V 4AB. Quilter Investors is registered in England and Wales (number: 04227837) and is authorised and regulated by the Financial Conduct Authority (FRN: 208543).

Quilter Investors Monthly Income Portfolio and Quilter Investors Monthly Income and Growth Portfolio (“the Funds”) are sub-funds of Quilter Investors Multi-Asset OEIC, an investment company with variable capital incorporated in England and Wales.

Quilter Investors Multi-Asset OEIC is authorised by the Financial Conduct Authority as a non-UCITS retail scheme and can be distributed to the public in the United Kingdom.

Quilter Investors uses all reasonable skill and care in compiling the information in this communication which is accurate only on the date of this communication. You should not rely upon the information in this communication in making investment decisions. Nothing in this communication constitutes advice or personal recommendation.

An investor should read the Key Investor Information Document(s) (“KIID”) before investing in any sub-fund of Quilter Investors Multi-Asset OEIC. The KIID and the prospectus can be obtained from www.quilterinvestors.com in English.

The Funds invest principally in other collective investment schemes. Your attention is drawn to the stated investment policy which is set out in the prospectus.

*MSCI. Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data, (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI’s express written consent.

Online For further information please visit www.quilterinvestors.com

Discuss Contact your financial adviser to discuss your investment planning options.

Quilter Investors expertly designed multi-asset solutions.

SK19760/220-0675Approved for 12 months from August 2020

QIL-218-20

monthly income portfolios - quilter investors€¦ · income portfolios, active holdings form the...

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