With interest rates at historic lows and GDP growth set to stay subdued for an extended period, it is of little surprise that UK investors are looking to prop up their income with dividend-paying funds.
Traditionally, investors have opted for either fixed interest funds, which target stable and regular income with a minimal capital risk to holders, or equity income funds, which target both income and capital growth.
However, with many suggesting the 30-year bull run in bonds is coming to an end, and others wary of investing in equity markets given the various macro headwinds in Europe and beyond, there is a growing interest in diversified income products among the IMA’s Mixed Investment and Specialist
Here is a selection you may wish to consider adding to your portfolio:
Invesco Perpetual Distribution
With £1.57bn assets under management (AUM) and FE Alpha Managers Paul Causer and Neil Woodford
at the helm, Invesco Perpetual Distribution is one of the highest profile mixed-asset funds on offer.
It aims to achieve a balance of income and capital growth through a portfolio of primarily UK equity and fixed interest securities.
It currently has a one-year historic yield of 6 per cent – the highest in the IMA Mixed Investment 20-60% Shares sector and well above average for IMA UK Equity Income, Sterling Corporate Bond and UK Gilt. Across these three sectors only 10 funds currently yield more.
As well as having a high yield, the portfolio – which is also headed up by Paul Read
– is one of the best performers of its kind in total return standings. According to FE data, it is a top-three performer in its sector over three years with returns of 46 per cent, and top quartile over one and five years as well.
Performance of fund vs sectors and index
Source: FE Analytics
|1-yr returns (%)
|3-yr returns (%)
||5-yr returns (%)
|Invesco Perp - Distribution
|FTSE All Share
|IMA Sterling Corporate Bond
|IMA UK Equity Income
|IMA UK Gilt
|IMA Mixed Investment 20-60% Shares
Although it has fallen short of the average UK Gilt
and Sterling Corporate Bond
fund over one and three years, it has consistently beaten IMA UK Equity Income
with significantly less volatility.
Invesco Perpetual Distribution holds a number of the defensive names also seen in Woodford’s £12bn High Income fund – including GlaxoSmithKline, British American Tobacco and Vodafone – as well as international names such as Roche and Reynolds American.
It currently has 34 per cent of its assets invested in equities, 3 per cent in cash and the remaining 63 per cent in fixed interest markets. Most of this exposure is invested in BBB- and BB-rated securities, with only a fraction in AAA.
The fund has a minimum investment of just £500 and a total expense ratio (TER) of 1.57 per cent.
Aviva Global Cautious Income
Sitting in the IMA Specialist sector, this five crown-rated fund is not readily comparable to other mixed asset income portfolios; however, since its launch in June 2006, few funds in the Mixed Investment sectors can match it in terms of income and total return.
The £132m portfolio is headed up by Iyad Farah
and Mark Wauton
, who target a one-year historic yield after charges of equal to or greater than 5.5 per cent, or the prevailing Bank of England base rate plus 1 per cent. It currently has a yield of 4.1 per cent, which means it falls in line with the secondary objective.
As well as providing a competitive yield, Aviva Global Cautious Income has outperformed the average Mixed Investment 20-60% Shares fund over one, three and five years, albeit with slightly more volatility. However, it is less volatile than Invesco Perpetual Distribution.
It has outperformed the average UK Equity Income fund by more than 15 per cent over five years and matches it over three years.
The portfolio currently has 60 per cent invested in bonds, 4.5 per cent in cash, and the remainder in global equities. This equity exposure is predominantly in the UK, although Farah and Wauton also have significant positions in Europe and the US.
Aviva Global Cautious Income has a minimum investment of £5,000 and a TER of 1.43 per cent.
IM Matterley Regular High Income
This is the lowest risk of the three, boasting the best record over a five-year period by some distance, thanks to its strong record during the down markets of 2008 and 2011.
According to FE data, IM Matterley Regular High Income has returned 23.13 per cent since May 2007 – a figure that is only beaten by 10 funds across the three Mixed Investment sectors. However, its 67 per cent exposure to fixed interest means that it is significantly less volatile than all of these.
Performance of fund vs sectors over 5-yrs
Source: FE Analytics
With a yield of 4.42 per cent, the five crown-rated fund also competes with the average UK Equity Income and fixed interest portfolio in the income stakes.
The £40.4m portfolio is headed up by Chris Harris
and Chris Evans
. It has a minimum investment of £1,000 and a TER of 1.1 per cent.