Distribution change on Monthly Income Bond Fund

Liontrust SF Fixed Income Team

Liontrust's Sustainable Fixed Income team believes flexibility is key for managing the Monthly Income Bond Fund (MIBF). This is so the team has the tools to manage risk throughout the economic cycle and the ability to seek to deliver a leading level of income with lower volatility over the long term. Stock selection on the Fund focuses on identifying the best-value bonds from high-quality issuers with the aim of maximising risk-adjusted returns.

Given current market conditions, the fund managers have decided to reduce the monthly income distribution on the Fund from 0.40p to 0.34p per unit, with effect from the end of September, so they can continue to meet the above objectives. With UK government bond yields near historic lows and credit spreads compressing over the past two years, they feel the current monthly distribution level is no longer sustainable over time. In addition to falling yields across the market, many of the higher-yielding bonds in the portfolio have also been redeemed or called over the past year.

With valuations close to multi-year lows, the managers do not believe it is appropriate to add risk at this stage in order to chase yield, as this could potentially increase volatility and downside risk.

Even after the reduction, we believe Monthly Income Bond will likely remain among the highest-yielding funds in the IA Sterling Corporate Bond sector (which is the comparator benchmark), if not the highest. We want to reiterate that the Fund does not have an explicit yield target and we have always been clear we are prepared to cut income if necessary to maintain credit quality.

The overall distribution from the Fund for 2021 is expected to be around 4.56 pence per unit, which equates to a yield of 4.46% based on the standard B Income share class price at the start of the year. Post the monthly reduction, the distribution for 2022 is expected to be around 4.08 pence per unit, which equates to a yield of 4.08% based upon the current B Income share class price.

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Key Risks

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. The majority of the Liontrust Sustainable Future Funds have holdings which are denominated in currencies other than Sterling and may be affected by movements in exchange rates. Some of these funds invest in emerging markets which may involve a higher element of risk due to less well-regulated markets and political and economic instability. Consequently the value of an investment may rise or fall in line with the exchange rates. Liontrust UK Ethical Fund, Liontrust SF European Growth Fund and Liontrust SF UK Growth Fund invest geographically in a narrow range and has a concentrated portfolio of securities, there is an increased risk of volatility which may result in frequent rises and falls in the Fund’s share price. Liontrust SF Managed Fund, Liontrust SF Corporate Bond Fund, Liontrust SF Cautious Managed Fund, Liontrust SF Defensive Managed Fund and Liontrust Monthly Income Bond Fund invest in bonds and other fixed-interest securities - fluctuations in interest rates are likely to affect the value of these financial instruments. If long-term interest rates rise, the value of your shares is likely to fall. If you need to access your money quickly it is possible that, in difficult market conditions, it could be hard to sell holdings in corporate bond funds. This is because there is low trading activity in the markets for many of the bonds held by these funds. Mentioned above five funds can also invest in derivatives. Derivatives are used to protect against currencies, credit and interests rates move or for investment purposes. There is a risk that losses could be made on derivative positions or that the counterparties could fail to complete on transactions.


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Thursday, September 23, 2021, 11:08 AM