Important Notice

The 1OAKFunds website is designed solely for Professional and Eligible Counterparties as defined by the Financial Conduct Authority and their professional advisers. To view the content you confirm that you have read and accept our Disclaimer. If you are not a Professional Client, Eligible Counterparty or professional adviser you should not proceed any further. In particular, the content of this website is for Professional Clients and Eligible Counterparties only and should not be relied upon by, or circulated, to Retail Investors.

Issued by 1OAK Capital Limited, authorised and regulated by the Financial Conduct Authority.  1OAK Capital Ltd (1OAK) (Registered in England & Wales Number: 06890293; FCA registration number 501453) provides fund management services for its customers. 1OAK Capital Limited is authorised and regulated by the Financial Conduct Authority. Registered Office of 50 Sloane Avenue London SW3 3DD.

Main Points

  • Dividend yield and interest income on all assets is very low
  • 1OAK Multi-Asset Fund D share classes offer a 4% per annum distribution
  • Unfettered investment in equities and bonds, guided by Blackrock
  • The MA80 distribution share classes have delivered rising income and capital appreciation
  • Distribution policy mitigates sequencing risk
  • Capital is at risk, and distributions will be reduced if the NAV falls

Introduction

Income seeking investors have had a tough time recently. Yields on bonds have all but disappeared. In addition, companies slashed dividends due to the Covid crisis. As a result, income-seeking investors have had to invest in non-mainstream assets and accept increasing volatility, equity market, credit or liquidity risk.

The Distribution share classes of the 1OAK Multi-Asset 80 Fund offers investors that want an income with a genuine alternative. The benefits that the fund provides stem from the distribution policy. The fund does not generate the distribution from the income it receives. Instead, it pays 1% per quarter (4% per annum) from the fund's assets. The distribution process automates a strategy that many advisers use to generate income, periodically liquidating a part of the portfolio to meet the clients' immediate income requirements.

Total return investment

The first significant benefit of the distribution policy is that the fund does not need to invest in income-generating assets. Instead, the fund invests in a diversified, liquid portfolio of equities and bonds guided by Blackrock. The investment objective is to hold the asset mix with the best risk/return profile. Breaking the link between the income that the fund receives from the assets it holds, and the distribution it pays, allows the fund to invest in assets that offer the prospect of high returns regardless of the yield.

Distribution linked to NAV offers the chance of rising income and capital growth

Linking the distribution to the NAV means that the distribution will rise if the funds' value increases. If the NAV increases, the distributions will also increase. However, investors need to be aware that linking the distribution to the funds' value means that the distribution will vary from one quarter to another and that the distribution will be reduced if the NAV falls.

Income for life with no sequencing risk

The distribution policy ensures that the fund will offer an income in perpetuity and will not suffer from sequencing risk. (Sequencing risk is the possibility of an investor running out of money from a combination of extracting a fixed value from a fund at regular intervals and a fall in the funds' value.)

Realised rising income and capital growth

Investors that invested in the distribution share classes of the 1OAK MA80 fund when they were launched have benefited from rising income and capital appreciation. Over the last first seven months since launching the fund at the end of January 2021 investors have received two distributions and seen the value of their investment grow

Figure 1: Performance of MA80 GBP D2 Share class and cumulative distributions

1OAK MA80 Fund delivers rising income chart

Source: 1OAK Capital. The performance of the GBP D2 shares and distributions is rebased to the 8th March 2021. The chart shows the increase in the capital value and distribution per share over the period.

Figure 2: 1OAK MA 80 distribution per share and growth

1OAK MA80 Fund delivers rising income chart 2

 

Distributions

Capital Growth (rhs)

 

Jun-21

Sep-21

15-Sep

EUR

1.0863

1.0955

8.45%

GBP

1.0374

1.0482

3.77%

USD

1.0383

1.0499

3.94%

Source: 1OAK Capital. The chart and table show the distribution paid by each share class in June and September. Capital Growth is calculated from the launch date of each fund through to the XD value at close of the 15th September, and so includes the September distribution. The differences in capital growth

Conclusions

The performance of the D2 share classes has, to date, been precisely in line with our hopes and expectations. The investment strategy has generated capital appreciation that has resulted in rising income and growth for investors.

Download PDF