Aston Hill Growth & Income Fund

Analysis: Managed by the team of Andrew Hamlin and Vivian Lo, this is a global balanced fund that has an income focused, go anywhere mandate. It pays investors a monthly distribution of $0.03 per unit, which works out to an annualized yield of 4.75% at current prices. The fund has a nearly $30 million in tax loss carry forwards, which mean that any income paid out to investors is likely to be treated as return of capital for tax loss purposes. This makes it very tax efficient in a non-registered account.

The managers use the fund’s relatively small size to its advantage, taking a more opportunistic approach. They are very active in their process, with portfolio turnover averaging well above 100%. In addition to buying stocks and bonds, they will also use options, a bit of short selling, and the tactical use of cash to help manage both volatility and downside risk. Results in this front have been mixed, as volatility has been higher than a global neutral balanced benchmark.

On the equity side of the portfolio, it holds approximately 80 names, with a heavy emphasis on cyclical names. It is significantly overweight financials, real estate and consumer cyclical names, while being underweight energy, industrials and technology. They tend to focus on what they believe to be high quality, undervalued companies that have the highest potential for cash flow growth.

The bond sleeve of the portfolio is heavily concentrated on Canadian and U.S. high yield offerings, with no exposure to investment grade bonds. This strategy lowers the fund’s sensitivity to rising interest rates, and increases the income stream, which will allow it to outperform in a flat or rising interest rate environment. A drawback is that it increases the credit risk in the portfolio, and if we see any disruption in the high yield market, this fund is likely to be hit harder than those funds where the bond sleeve is higher quality offerings. Still, Aston Hill has very strong reputation in the high yield space.

At the end of March, the fund held nearly 60% in equities, a third in bonds, with the balance in cash. Geographically, more than half is invested in the U.S., a third in Canada, and the balance around the rest of the world.

The MER has been capped for 2014 at 2.35%, which is competitive for its peer group. This is a pretty solid balanced fund offering, but is more risky than it appears. If you are a risk averse investor, you may want to look elsewhere. But if you can stomach a bit of risk for the potential of above average returns, this is a great balanced fund to consider.