Morningstar, Day Three: Sextant Global High Income fund

David_Snowball

This is an interesting one. The managers target a portfolio yield of 8% (currently they manage 6.5% - the lower reported trailing 12 month yield reflects the fact that the fund launched 12 months ago and took six months to become fully invested). There are six other "global high income" funds - Aberdeen, DWS, Fidelity, JohnHancock, Mainstay, Western Asset). Here's the key distinction: Sextant pursues high income through a combination of high dividend stocks (European utilities among them), preferred shares and high yield bonds. Right now about 50% of the portfolio is in stocks, 30% bonds, 10% preferreds and 10% cash. No other "high income" fund seems to hold more than 3% equities. That gives them both the potential for capital appreciation and interest rate insulation. They could imagine 8% from income and 2% from cap app. They made about 9.5% over the trailing twelve months through 5/31. This is the only Amana/Sextant fund that is Kaiser-less.

Charles

SGHIX has struggled to date versus say PQIZX or even AQRIX from both absolute and risk adjusted return perspectives. Here's M* performance comparison:

David_Snowball

Reply to @Charles: The key might be the source of the return. Sextant positions itself purely as an income fund which might provide consistent and substantial income distributions. The manager I spoke with (there are two: one plays defense, the other is the offense) argued that as long as a firm's dividend was large and safe, its capital appreciation prospects were largely uninteresting.

That strikes me, in some ways, as a return to the pre-1960s vision of stock investing.

The question becomes: under what market conditions is a total return strategy of portfolio construction superior to, or inferior to, an income strategy? Right now, with the market popping along, you certainly do get a more attractive profile by factoring capital appreciation more strongly into your security selection equation. The question is: if what you want is a fund portfolio that acts a lot like an investment grade bond traditionally did, would you change?

An interesting thought, in any case.

David

Charles

Reply to @David_Snowball: Hey that's good. I like it. We need to come up with appropriate metric...a kind of Sharpe for yield...or maybe, it's Sharpe after yield.

Actually, there have been a number of world allocation funds that have popped up recently, about 42. Most struggling. SGHIX is certainly one of better ones.

Numbers are a little dated, just through March. Here are some of the better performers, sorted by Sharpe:



And some of the poorer ones:



Will revisit again in July.